Industry News, Mortgage, Story

Bank offers home loans below 4%

Program helps indebted builders with low rates for buyers

A small bank in the Pacific Northwest is hoping to boost sales for builders who owe the bank millions by offering mortgages to new homebuyers at less than 4 percent interest.

Banner Bank began offering the low rates through a subsidiary on March 7 in Portland, Ore., and surrounding markets, and plans to expand the program next month to Seattle and Spokane, Wash., and Boise, Idaho.

In announcing the "Great Northwest Home Rush" program, Banner subsidiary Community Financial Corp. said borrowers with good credit and 20 percent down payments could qualify for 30-year fixed-rate loans with a "note rate" of as low as 3.875 percent.

That translates into a 3.973 percent annual percentage rate, or APR, when the best rate available from most lenders is closer to 5 percent. Even prospective homebuyers bringing no money to the table could obtain 4.875 percent fixed-rate loans, the bank said.

The catch is that the loans are available only for properties purchased from a list of several hundred homes and lots developed by about 75 builders who have millions in outstanding loans with Banner. The list includes homes and lots in Redmond and Vancouver, Wash., and several cities in Oregon including Beaverton, Bend and Portland.

As many as $50 million in low-interest loans will be made in the Portland area through March 22, said Ken Larsen, Banner’s senior vice president, real estate lending.

"We’ve had pretty nice success with it in Portland," Larsen said, selling 30 of 300 available homes on the first day. "We want to reach out to people who are sitting on the fence and waiting for the bottom, and help them out. Noboby will know where the bottom is until two months later."

Banner’s program is not unlike a proposal put forward by building industry groups that the government subsidize mortgage rates for all qualified borrowers.

The National Association of Home Builders and other members of a "Fix Housing First Alliance" group had hoped the $787 billion stimulus bill signed into law on Feb. 17 would bring 30-year fixed-rate mortgages down to 2.99 percent on sales closed by June 30, and to 3.99 percent on closings between June 30 and Dec. 31 (see story).

The National Association of Realtors, which supports a temporary government interest-rate buy-down program, has estimated that a 1 percent reduction in mortgage interest rates boosts buying power by 10 percent and can generate 500,000 or more sales.

Although the Federal Reserve is purchasing billions of mortgage-backed securities issued by Fannie Mae and Freddie Mac — a move that’s credited with bringing rates on conventional, conforming loans to near-historic lows of around 5 percent — the stimulus bill did not include the interest-rate subsidy program advocated by the industry. …CONTINUED