ONCE UPON FOREVER

What do you do when you don't like the  rules?

Search for a way around them. And that's apparently what Bank of America is doing. According to a story in today's WSJ, the mega bank is "rolling pout a new mortgage product that would allow borrowers to make down payments of as little as 3% in an end run around the FHA."

These are the same regulations that punished the mega bank and other lenders for making "errors on similar loans" during the sub;rime mess. The key word here--and it's a kind choice--is errors. What they really mean is lack of due diligence and prudence. But we'll leave that for now.

Here's the crux of it, according to the Journal.
Bank of America Corp. is rolling out a new-mortgage product that would allow borrowers to make down payments of as little as 3%, in a move that would represent an end run around a government agency that punished the bank for making errors on similar loans.

The new mortgage program, which the Charlotte, N.C.-based lender plans to unveil on Monday, will let borrowers avoid private mortgage insurance, a product to protect mortgage lenders and investors that is usually required for low-down-payment loans.
That could make the new loans cheaper than those offered through the Federal Housing Administration, the government agency that has won big settlements from banks in recent years for what the lenders describe as minor errors.

The FHA doesn’t make loans but insures lenders against default on mortgages that can have down payments of as little as 3.5% and a credit score of as low as 580, on a scale of 300 to 850. When lenders make the loan, they have to certify that everything in a loan file is accurate.
Bank of America’s new mortgage cuts the FHA out of the process. Instead, the new loans are backed in a partnership with mortgage-finance giant Freddie Mac and the Self-Help Ventures Fund, a Durham, N.C.-based nonprofit.

Bank of America agreed to pay $800 million to settle claims of making errors on FHA-backed loans in 2014. This month, Wells Fargo & Co. said it would pay $1.2 billion to settle similar claims, joining J.P. Morgan Chase & Co., which settled in 2014, and other big lenders which have settled over the past few years. Nonbank lender Quicken Loans Inc. is currently fighting such claims.

Many big banks have pulled back sharply from FHA-insured lending in the past few years, citing the risk of being hit with penalties for minor errors. A raft of nonbank lenders have rushed in, but the banks’ retreat from the program has made it more difficult for low-income borrowers to get home loans.

“We need an alternative in the marketplace that helps creditworthy borrowers with a track record of paying debts on time,” said Bank of America managing director D. Steve Boland, who noted that “We think there are still a lot of uncertainties out there in working with FHA.”

If you read between the lines of the statement from the Bank of America official, you get the gist. Even if you grant these bankers the benefit of the doubt, what might start out to be a good, decent cause ends up as something else when the money starts rolling through greedy banker hands.

Note too who will be on the hook should the whole grand scheme blow up. Recall too that all the monetary money printing was suppose to revivify the mortgage business. If these folks can figure out someway to subvert these rules, they surely will figure out some way to bundle these products and sell them probably to your state retirement fund.

This is a carousel that never stops.