First Guaranty’s non-QM unit launches closed-end home equity loan

First Guaranty Mortgage Corp. on Thursday announced the launch of a new fixed-rate second-lien product to its distributed retail, consumer direct and mortgage broker loan channels.

The company had started experimenting with a similar home equity product that could also be used as part of a piggyback loan before the pandemic disrupted the market, and it’s bringing it back as a standalone product for now. Piggybacks allow second-lien loans to serve as an alternative to mortgage insurance that borrowers may get if they have less than the required down payment.

The introduction of the new second-lien is in line with renewed interest in standalone lines of credit and other home equity products since borrowers have become reluctant to refinance existing first liens with rates rising. The closed-end second lien also lets borrowers lock in home equity rates before they rise higher.

“This new offering gives individuals an affordable alternative to tap into their home's equity. As the market fluctuates, borrowers can gain peace of mind with a fixed rate,” said Paul Jones, senior vice president, non-QM development and production, in a press release.

The second-lien loan can have a 10, 15, 20 or 30-year term. The 680-minimum credit score and combined loan-to-value ratio limit of 100% are intended to mitigate the home-equity performance risks that emerged in a past housing crash. 

Non-qualified mortgages made to atypical borrowers, conventional first-liens, and financing on vacation homes can be combined with the new seconds, but the home equity product can’t be used in conjunction with government-insured loans.

In contrast to some other lenders that have been offering home equity lines of credit, First Guaranty Mortgage is only offering a closed-end product so far in line with what’s more commonly offered at nonbanks.

While the company isn’t currently offering HELOCs, it’s positioning itself to be open to further product changes as the market shifts, and is considering bringing back piggyback loans.

“The needs of borrowers today can change quickly as the market fluctuates and we must be nimble and ready to adapt to it,” Jones said.