CHARLOTTE, N.C.–Bank of America Corp. is joining with the Freddie Mac and Self-Help Credit Union on a new mortgage product offering down payments of as little as 3%.
The program will allow borrowers to avoid private mortgage insurance, which is typically required by mortgage lenders and investors to provide some protection on low down payment mortgages. As a result the FHA will not be part of the process, and the loans will be backed by a partnership with Freddie Mac and Self-Help Ventures Fund, a unit of Self-Help Credit Union in Durham, N.C.
The move comes after Bank of America announced an $800-million settlement with the government due to errors on FHA-backed loans in 2014. Other big lenders have also been fined.
According to BofA, after it underwrites a mortgage under the new program, it will sell it to Self-Help Venture Fund, which will then sell it to Freddie Mac. If a mortgage defaults, and Self-Help isn't able to recover the full amount owed, Self-Help will take most of the losses before Freddie Mac starts to take a loss.
To qualify, borrowers must have a credit score of at least 660, which is higher than FHA's requirement, and an income that is less than the area's median.
Bank of America said that for now it is capping loan production at $500 million annually under the program and that it expects that three out of four mortgages in the new program would have otherwise been backed by the FHA.