Bank of America Cuts Closing Costs

The Charlotte, N.C.-based lender makes push into the mortgage business by offering no-fee loans.

Jody Shenn
Bloomberg News
May 8, 2007

Bank of America Corp., the second-largest U.S. bank, has started offering U.S. customers a no-fee mortgage whose interest rate covers upfront charges and insurance costs while remaining competitive with loans from rivals.

The program eliminates fees normally charged for items including applications, appraisals and title insurance, a company statement said. The bank also won't require private mortgage insurance, typically required to protect a lender against default when mortgages exceed 80 percent of a home's value.

"When I say there's no fees, there's no fees," Floyd Robinson, head of the company's home-loan business, said Monday.

Bank of America, which is based in Charlotte, N.C., has said it wants to boost investments in mortgages, even with U.S. home sales running 14 percent below last year's level.

Lending was boosted by half in markets where the bank tested the program, Robinson said, and when the loan debuted nationally without an announcement last week, it produced the most applications for home purchases in the bank's history.

The company estimates that waiving similar closing costs on all mortgages for home purchases last year would have saved borrowers more than $17 billion, or about $3,500 per $200,000 loan.

The benefit for consumers will depend on whether the bank charges nothing more on interest to offset the other perks, said Keith Gumbinger, vice president at HSH Associates, a mortgage-rate research and publishing firm in Pompton Plains, N.J.

"Of course a company like Bank of America can do it, but I can't imagine that's a long-term business model," he said.

The bank aims to offer rates that beat at least half of rival lenders, and will pay $250 to any consumer approved for a mortgage who chooses to close with someone else, Robinson said. The program will guarantee closing within 25 days, or waive the first payment.

Bank of America was the sixth-largest home lender by new loan volume last year, with $169 billion, according to newsletter Inside Mortgage Finance. The bank is second in assets behind Citigroup Inc., Bloomberg data show.

quote:

Originally posted by Decks:

With the housing market depressed and prices coming more in line with actual value, this is a good time for them to get in. Plus, most of the subprime activity is being forced from the market.