October 27th, 2014 12:29 PM by Nick Rapplean
Just what we needed-a new acronym for the world of real estate financing. It's WBHL, which stands for Wealth Building Home Loan. But it's not just another snappy acronym that's fallen off the turnip truck. It's a new mortgage program, and it may just be the game-changer that many of us have long been waiting for.
For one thing, it trashes several lending shibboleths. For starts, how about forgetting the use of 30-year fixed-rate loans to get poor to middle-class citizens into affordable homes? The 30-year loan doesn't build up a home's value, as most of us well know; it just nudges the loan a bit closer too affordability. Then, if the borrower runs into financial problems, the 30-year loan does nothing, or next to nothing, to help the homeowner rise out of his or her financial difficulties.
An unlikely duo-Edward Pinto of the American Enterprise Institute, a very conservative group-and Bruce Marks, head of the very liberal Neighborhood Assistance Corporation of America, put aside politically-inspired antagonisms, and discovered a lot of common ground in their thinking.
One of the ideas Pinto emphasized was that home mortgages should be about building wealth, not just about affordability. So they worked to develop a 15-year loan that would build home equity more quickly than does the 30-year alternative and that was nonetheless relatively affordable to lower-class buyers.
A related feature of this program was that it allows the borrower to buy down the interest rate. Indeed, it's possible for borrowers to bring the interest rate down to 0%.
And that, of course, is exciting stuff. Someone with a 0% loan makes monthly payments that go, in their entirety, toward paying off the loan. As Pinto says, for someone with a 0% loan, a monthly payment is the equivalent of writing themselves a monthly check.
Note that, if it's possible once again to use one's home to build up wealth, the owner can turn to savings should financial problems arise, rather than trying in vain to negotiate his or her way out of the problem on the back of a 30-year loan that hasn't created much equity in the home.
One of the things that soon becomes obvious is: we're looking at a whole new perspective on mortgage lending. Instead of doing what we can to reduce the cost of a standard 30-year loan, we are doing what we can to turn home ownership and the loan that makes it possible into a source of savings. As Pinto notes, we're moving from a debt model to a wealth-building model-which could prove to be a very attractive change for many loan officers. And a rather easy and enjoyable sell.
There are numerous details to cover-and we'll get to them over time. Further, the loans are now available in a somewhat restricted way. But to get the flavor of just how important all of this may prove to be, look at the titles on articles being written about it: "Can the Wealth Building Home Loan Re-Animate the Mortgage Market?""A New Way to Build Equity" "Could This Mortgage Product Change Lending?"