BofA's no fee loan selling like hotcakes?

Bank of America Corp.'s no-fee mortgage has helped the lender boost purchase applications by 40 percent "after adjusting for changes in overall market activity," Reuters reports, and BofA is working on a similar product for those seeking to refinance.

The news service quoted Floyd Robinson, the president of the bank's consumer real estate and insurance services, who spoke at a real estate summit Reuters is hosting in New York.

The story doesn't say what the adjustment for changes in overall market activity was -- we just have to take BofA's word for it that the loan has been a smashing success. Kind of like we have to take BofA's word for it that there are no hidden costs to the no-fee loan, which waives private mortgage insurance for borrowers making down payments as small as 5 percent. 

BofA says the loan carries no points or fees for appraisals, title insurance, and other items that can add up on most loans. Some have speculated that the bank will recoup its costs by charging a higher interest rate, or that BofA is counting on the loan as a sort of loss leader to sign up new customers for the bank (you have to be a BofA customer to get the No Fee Mortgage PLUS loan).

Robinson told Reuters that no competitors have introduced a similar product because most don't keep the loans they originate on their books.

"They can't do this product because they have to sell what they originate," Robinson said. "My feedback I'm getting from the industry is they're trying to find some way to sell against it."

That the loan isn't marketable to investors may be an indication that it's a loss leader for the bank. Robinson said that within two years, the bank's average mortgage customer uses almost six other services, such as checking accounts or credit cards.

Bankrate.com blogger Holden Lewis says that while the loan "sounds too good to be true," his initial feedback from readers who've had first-hand experience with it has convinced him the loan is "the real deal."

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