Demand for REO Financing Reintroduces Loan
Seattle, WA-Demand for 100% financing options that can return increasing REO inventory into affordable housing options in a credit tightened marketplace has pushed at least one mortgage industry veteran to reintroduce the Mana loan.
The product offers an alternative in times when the focus is towards loan modification options or loan products insulated as much possible from default risk, which often is believed to be associated with borrowers who do not put money down. Although 100% financing still exists, Evelyn Nichols, the ideator of the Mana loan, may represent a a minority among her peers who continue to believe in such options.
Back in 2003 Ms. Nichols introduced the patent pending Mana Loan, a product she expected to market test during the mortgage boom years. The Mana Loan was also the reason why she established the Mana Co. LLC. Now she wants to reintroduce the Mana Loan, which is a 100% financing option.
Had the Mana Loan been widely available in the market, she said, those borrowers would not have defaulted now.
Her Mana Loan did not take off as she expected back then because "lenders were busy making money with the subprime loans," she said. Beyond the "what could have been," she insists the concept of the Mana Loan is viable and a great product in today's market.
It can serve especially well both borrowers interested in affordable housing and lenders and servicecrs facing growing REO inventory costs.
Ms. Nichols' Mana Loan combines a no downpayment, interest only 100% financing bimonthly payment mortgage loan, with a single premium immediate annuity and a universal life policy. Its structure is cost effective to the buyer who saves on downpayment funds, speeds up home-equity buildup and the total payment of the loan. It helps both buyers and brokers/lenders lower default risk and meet compliance requirements.
The greatest advantage of the Mana Loan is in its protective structure. "The money is in the policy. The people can borrow from the policy and make their house payments if they are in default and they don't have to pay it back," she said. "And that's what was a killer for some people because they had to make up for those payments, and get current at the same time. Plus they borrow it tax free."
The Mana Loan can be offered both as an adjustable- and a fixed-rate loan following federal and Washington state compliance criteria. Positive feedback from over 100 mortgage professionals made the executive optimistic about the future of the Mana concept. She admits, however, some lenders do not like the fact that it does not fit the Fannie and Freddie mold.
"Also, it is something new, so new, people really need to have a strong look at it to realize this product is going to reduce default rates, and build lifelong borrowers because it gives them reason for loyalty," she said.
Mortgage investor advantages are explained in detail and by example on the company website. For example, a 100% financing no-downpayment Mana Loan of $300,000 compares very favorably to a 95% conventional loan counterpart.
"The Mana Loan lends the homeowner more money upfront, usually 20% of the sales price," she explained. "That money is than placed into the annuity/policy, where it quickly builds equity ... increases security for the homeowner and provides a convenient, almost invisible way to build a healthy retirement or college fund."
Customers who get 100% financing are not interested in selling their house, she explains, because the assumption is that loan value never appreciates for the house. If they sell before the eighth year they will end up paying it off from their checkbooks or go into default. Lenders benefit from higher yields over conventional "A" paper.