Mortgage News: BofA Skews Truth About New Smoke and Mirrors No Fee Mortgage Loan

Tuesday, May 08, 2007

BofA Skews Truth About New Smoke and Mirrors No Fee Mortgage Loan

You may have recently seen news and press releases regarding Bank of America's new "No Fee Mortgage PLUS" program that touts the following..

No Closing Costs and No PMI for loans over 80% LTV at competitive rates.

Yet, Bank of America's website loan disclosures state differently... don't fall for this corporate "bait" as I will prove below.

BofA made some pretty bold claims in it's press release like this...

-- No Private Mortgage Insurance: No Fee Mortgage PLUS eliminates the need
for PMI, which is usually required for a loan-to-value greater than 80
percent. Bank of America enables borrowers to get into their home
without the need to bring 20 percent to the closing table in order to
eliminate PMI, which not only reduces cost but also eliminates anxiety
and uncertainty in the homebuying experience.

News agencies then give millions of dollars in trusted advertising by reporting it like this...

CNN.. " It also won't charge for private mortgage insurance - often required for borrowers who put less than 20 percent down."

Inman News... "but lets them make a down payment as small as 5 percent without having to purchase private mortgage insurance."

Milwaukee Biz Journals... "No Fee Mortgage Plus eliminates application fees, lender fees and the need for private mortgage insurance."

San Diego Source... " It also will not require private mortgage insurance on loans with less than a 20 percent down payment."

Does this sound too good to be true? That's because it is!

The way the loan really works, is that they charge you a "higher then normal" interest rate to pay / subsidize these closing costs that are "not being charged" by BofA. Instead of paying for the fee's out of pocket, you are simply financing them via a higher mortgage interest rate for the entire life of the loan.

Matt from Inman was the closest to getting the truth from BofA as reported in his Inman news piece..

In a conference call with reporters, BofA officials avoided the question of whether they would be recouping those expenses by charging a higher interest rate or points for the loan.

"It's not about interest rates, it's about value," said Floyd Robinson, BofA's president of consumer real estate, when asked whether the loan would carry a higher interest rate. When the loan's elimination of fees, private mortgage insurance and other features are factored in, he said, "We're confident the customer will feel (BofA's no-fee loan is) the best value."

This makes sense if you are keeping the loan for a short amount of time but if you anticipate to keep it for 30 years, it may cost you thousands more. Also, this is nothing new or exclusive... any and all lenders can offer this same mortgage program.

The smoke and mirrors part of this is Bank of America is stating to everyone that it will not charge for PMI but yet... directly on their website mortgage disclosures you will find this:

No Private Mortgage Insurance

There may be an incremental cost for the No Private Mortgage Insurance (PMI) option.

Read the entire BofA disclosure here.

Hmm... there may be a cost? I thought you (Bank of America) said that I won't be charged PMI?

How can companies get away with this smoke and mirrors tactic?

Remember... big print giveth... little print taketh.

Always, start with the fine print.

When shopping for a mortgage the numbers don't lie. Here are some mortgage calculators to help you with your mortgage decision. What does PMI actually cost... here is a PMI calculator.

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Anonymous Matt Carter said...

Jessie, you've found an interesting detail in the fine print of BofA's terms.

I would ask that you apply the same attention to detail in your reading of the Inman News story you reference, which in the fourth paragraph stated:

"In a conference call with reporters, BofA officials avoided the question of whether they would be recouping those expenses by charging a higher interest rate or points for the loan."


5:46 PM  
Anonymous Brian K said...

Why don't you apply. Compare the rate and cost difference and then you will truly find out versus making bogus hypotheticals...

The rates are maybe...MAYBE an 1/8th higher than other retail rates available out there.

And when there are no lender fees, no title costs, and no PMI - and no "charge-ons" for PMI!!! You will see that, indeed, you are the only one blowing smoke

6:56 PM  
Blogger Jessie B said...

Hello Brian,

As a mortgage lender, I did check mortgages back then and the rates where off by alot more than that. I did a post on Inman that highlighted that.

Additionally, Jack Guttenberg the Mortgage Professor from Wharton also did a survery...

and this was his finding...

" Guttentag ran 11 comparisons with a lender that meets his "Upfront Mortgage Lenders" certification requirements. BofA's loan was the better deal five times, but more costly six times."

So you may want to reconsider who is blowing smoke.

9:48 PM  
Anonymous Smart Equity said...

BofA has made some claims in the press release they released.The credibility of the bank will be put to test in the days to come.

5:44 AM  

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