It’s said that the pendulum tends to swing too far in either direction, and while I don’t know if that’s true in physics, it’s certainly true when it comes to mortgage products.
Let me explain.
For a long time, we had very limited mortgage products. There were basic fixed rate loans and a few adjustables. Then the pendulum started to swing.
In the mid-part of the recent decade, the subprime world was incredibly innovative in creating new mortgage products. These new mortgages had bells and whistles galore, and they had every feature imaginable.
The only problem was that all those loan products forgot one big thing, to take the borrower into consideration.
The loans had features meant to appeal to Wall Street, but lost in the shuffle was whether the loans were good for borrowers or not, whether a borrower could actually afford these loans.
When the subprime world blew up in 2007 and 2008, the pendulum swung back in the other direction, and that’s where we are today. Today’s borrower has very few choices, and like the proverbial baby getting thrown out with the bath water, a once legitimate-adjustable loan barely exists. It’s as if the sub-prime adjustables ruined the very concept of variability.
Today’s borrower, however, wants more choices. I talk to our Bankers every day as this seems to be a real theme they are hearing from borrowers.
As a result of this, Western Bancorp has decided to go back to the future, and we have come out with a variation on the original California Variable, a wildly popular loan type not seen since the 1980’s.
We call it the Safe AML
These are the loan features we are bringing back:
Very Low payment changes:
Payment caps are the feature of adjustable mortgage loans that control affordability. Our safe AML’s adjust cap is a .50%. Converting our .50% cap into dollars looks something like this: for every $100,000 dollars borrowed the most a payment could increase or decrease during any adjustment period is about $28.00. It’s very affordable.
Affordable life cap of 7.25%:
Life caps are also very important as they protect borrowers from huge increases over time. Most life caps on adjustable rate loans today are between 9% and 11%. The safe AML’s life cap of 7.25% and this is only 1.5% over today’s 5.75% fixed rates. At some point in the future, the borrower could have a payment slightly higher than today’s fixed rate. This is a worst case scenario, however, and it’s not a bad trade off.
Low 3.5% start rate:
Again, today’s Jumbo fixed rates are around 5.75% to 6.00%, so our start rate is way, way lower. This wildly increases the borrowers buying power.
The safe AML allows for a qualifying Debt-to-income ratio of 50%:
Because we have designed a loan that is so safe for consumers, we can allow their new mortgage payment to be as much as 50% of their income. Your buyers can get more home and more affordable payments.
Loan amounts up to $2 million!
We love Jumbo loans. We feel very strongly about the local market and as a local banker we are making a bet on supporting the high end.
We created this loan at Western Bancorp, and not only is it a good loan for the borrower, it shows what I believe is a major strength of the mortgage banker: The ability to take an innovative idea and turn it into a specific loan. My hope is that other Bankers will follow our lead and create mortgage product that help increase home sale and affordability.