Figure Lending has unveiled a new piggyback loan at a time when housing affordability is rarely at its worst.
Call it a sign of the times, and perhaps an eerie reminder of the housing market of the early 2000s.
But maybe with a few more safeguards this time around, like real loan underwriting!
The new product, a home equity line of credit (HELOC), will serve both new home buyers and existing homeowners who want more access to their equity.
It will be available from Figure and through our partner network of lenders, banks, credit unions, loan providers, and real estate developers.
New Model Piggyback HELOC Allows for Lower Payments
As noted, Figure’s new Piggyback HELOC aims to serve new buyers and existing homeowners.
Those still looking for that perfect structure can use a HELOC as a second mortgage that closes at the same time as the first mortgage, hence the term piggyback.
For example, they can take out a first mortgage with an 80% loan-to-value (LTV) ratio and a HELOC for another 10% or more. This is known as an 80/10/10 loan.
Other exceptions include the 80/20 loan, which indicates a lower payment. These were very popular in the early 2000s.
It’s not clear how high the Figure will be for this product, but my understanding its on the high off in mind, high, the figure will be as high as 95%.
In other words, you may be able to take out a first and second mortgage while bringing in a 5 percent down payment. This would be 80/15/5.
Using a second mortgage can help home buyers avoid private mortgage insurance (PMI) and potentially protect against a lower mortgage rate.
Keeping the original loan at 80% eliminates the need for PMI, potentially reduces price adjustments, and can help the borrower stay under the agreed loan limit.
Many times, the rates of the conforming loan are cheaper than the rates of the jumbo mortgage. And qualifying is often easier for loans financed by Fannie and Freddie.
Recent Home Buyers Can Combine It With Refinance
If you’re an existing homeowner, Figure argues that you can use the piggyback option to “move to a lower-cost alternative.”
They cite an example where a recent home buyer wants to tap equity using a refinance, but is under the 80% LTV limit for agency loans backed by Fannie and Freddie.
Even if they were originally buying a home with less than 20% down, they could lower their first loan to 80% LTV and drop the PMI while taking out a second loan with a higher combined CLTV.
For example, someone who bought a home for $450,000 with 10% down could take out a new first mortgage loan at 80% LTV and add a piggyback to get 15%.
In the process, they get access to more equity in their home, but they also put themselves in a position where they have more debt and may be closer to being underwater if housing prices fall.
The figure offers HELOCs as large as $400,000, meaning the loan amount shouldn’t be a roadblock for most borrowers.
Figure HELOCs Are Slightly Different
Number calls itself the #1 non-bank home line of credit in the United States.
Despite only launching in 2018, Mathematical Lending has already originated over $12 billion in home equity lines of credit.
Part of that phenomenal growth can be attributed to their use of technology, including a 100% online application process, no assessment/title fees, and e-Notary services in many states.
And the process can be done quickly, with funding in just five days.
But I should point out that their HELOCs require a full draw on the line amount at closing. And they charge an initial fee based on that draw, which ranges from 0-4.99%. So the cost can be high.
Their HELOCs are also fixed-rate loans, which is odd because most HELOCs are variable and tied to the principal amount, which goes up or down whenever the Fed changes its fed funds rate.
For the record, prime rates are expected to decline next year as the Fed eases its monetary policy.
Figure HELOC is already offered by some of the biggest mortgage lenders out there, including CrossCountry Mortgage, Fairway Independent Mortgage, Rate (formerly Guaranteed Rate), Movement Mortgage, Union Home Mortgage, and many more.
The company’s products are now available in 49 states and the District of Columbia.
(photo: Low Jianwei)
Source link
