Genworth Will Insure 40-Year IOs
Genworth Mortgage Insurance here has introduced a product it says will allow lenders to offer 40-year interest-only loans, which in turn will allow more consumers to purchase homes in high-priced housing markets. The product is called Genworth IO 40.
Like the 30-year IO, the 40-year IO has a fixed-rate term of 10 years. But because the rest of the amortization period is now 30 years instead of 20, the payment shock when the IO period ends is reduced.
The product is designed for borrowers who are planning to be in their home for the long term, said Paul Imura, managing director of product development at Genworth.
It is a borrower-paid mortgage insurance product and there are several options on how the premium can be paid.
In addition, where traditional mortgage insurance for IO loans only allow the loan to have a 95% loan-to-value ratio, with Genworth IO 40, the lender can provide 100% LTV financing.
When creating new products, Mr. Imura said, the company looks at a number of attributes, the most important being capability. The company has extensive loss mitigation programs and the aim is to keep borrowers in their home.
A trend that points out the need for this product, Mr. Imura said, is that approximately one-in-every-four loans originated today has an "extended term," or one that goes beyond the traditional 30-year amortization period. Thus there is growth in the use of the 40-year loan.
The company also pointed out that 61% of the loans originated last year in California were IOs.
In an example provide by the company to show the affordability of a 40-year IO loan, the borrower is receiving a loan for $417,000 with a rate of 6.375%.
With both the 30-year and 40-year IOs, the monthly payment for the first 120 months would be $2,215.
But with the 30-year IO, after entering the adjustment period, the payment is $3,123 until payoff. With a 40-year IO it is $2,627. (c) 2006 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com http://www.sourcemedia.com