California Bank & Trust announced this week its participation in a landmark $25 million private-sector initiative that will significantly help more California families overcome income, credit and savings barriers to home ownership without public subsidies.
The new statewide effort combines an affordable 30-year fixed-rate first mortgage with a very low market rate second loan that families can use to finance their down payment or closing costs. The pilot program also combines low-cost mortgage insurance, flexible underwriting and minimal borrower contributions with a statewide grass-roots marketing and counseling effort spearheaded by the California NeighborWorks Organizations.
The unique private-sector approach is the result of a far-reaching new collaboration between Freddie Mac, California Bank & Trust, Impact Community Capital, the California Housing Loan Insurance Fund (CaHLIF) and the California NeighborWorks Organizations.
"This announcement means that a family with just $2,000 in their checking account could buy a $200,000 house today," said Craig Nickerson, Freddie Mac's vice president of community development lending. "I want to congratulate California Bank & Trust, the NeighborWorks Organizations, CaHLIF and Impact for coming together to pool their creativity and resources to help more families across the state become homeowners."
Under the pilot, California families can finance the minimum 3 percent downpayment with a below-market second mortgage from CaHLIF that isn't repaid until the house is sold. Families earning up to 80 percent of their area's median income can also receive up to $2,500 toward closing through a grant from California Bank & Trust. Borrowers are required to contribute just one percent of the purchase price from their own personal funds toward either the downpay-ment or closing costs.
California Bank & Trust will originate the mortgages and sell them to Freddie Mac. By purchasing the mortgages, Freddie Mac replenishes the program so that the Bank can help more California families afford a home. The CaHLIF will insure the first mortgage.
"We are proud to be a part of this important program," said Mike Mantle, senior vice president of the Community Development Department of California Bank & Trust. "It's our mission to be a highly respected statewide financial services company and to develop advantageous relationships that benefit residents of our communities. This initiative will help ensure that housing opportunities are within the reach of more Californians."
Other key benefits include flexible treatment of past credit issues and expanded debt-to-income ratios - qualifying more low and moderate-income families for an affordable market rate, conventional mortgage. The program is open to all qualified families earning up to 140 percent of the area median income.
California's statewide network of NeighborWorks Organizations will market the new pilot program and recruit and counsel potential borrowers. Orange County Neighborhood Housing Services is one of the first community-based housing organizations to offer this new affordable homeownership initiative.
Impact, a consortium of insurance companies, will provide the risk capital by investing $500,000 in a revolving loan pool that will be used to finance the below-market rate second mortgages that borrowers can use to finance downpayments as well as some closing costs. The interest rate on the 30-year second mortgage is 3 percent.
Interested borrowers can learn more by visiting www.calneighbor.com.