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Tom Kelly
Tom Kelly
The Real Estate Adviser

October 18, 1996

BOEING PLAN WILL HELP HOMEBUYERS

  • The Real Estate Advisor

    • BY TOM KELLY
    The Real Estate Advisor

    When I heard the biggest mortgage man in the country was going to be under the same tent with the leader of the region's largest company, I got the feeling there might be some real news to go along with the usual promotional handouts.

    In fact, there were letters of congratulations from Senators Patty Murray and Sale Gorton and another from Congressman Jim McDermott. Seattle Mayor Norm Rice even showed up to say a few words to one of the more impressive groups of nonprofit housing leaders and mortgage lenders ever assembled on a drippy morning.

    The contingent gathered under a tent in Seattle's Judkins Park neighborhood where HomeSight, a local nonprofit, is building seven new homes to be sold to low-income families.

    Jim Johnson, chairman and chief executive officer of Fannie Mae --the nation's largest provider of home-loan money -- said the company had helped 3,500 families obtain affordable housing in the first year of a five-year $1.5 billion program. Forty percent of those assisted were first-time homebuyers.

    Although the deserved congratulations were a result of a combined effort to improve ownership of inner-city housing, the larger celebration will soon be felt throughout the state.

    Phil Condit, Boeing Company president and chief executive officer, said the aerospace giant had reached an agreement with Fannie Mae to provide Boeing workers, past and present plus their immediate family members, with home-loan products that had been taboo in the industry until now. And, if the idea works for one employer, could others be far behind?

    The Boeing Employees' Credit Union will offer its 200,000 members an unsecured loan of up to 2 percent of the mortgage amount for closing costs on home purchases. These loans will be available later this year and will carry the same interest rate as the primary loan.

    In addition, the credit union will also participate in Fannie Mae's Pledged Asset Mortgage (PAM) pilot program. The PAM allows credit union members to secure up to 100 percent financing for their mortgage when a member of the borrower's family pledges a BECU certificate of deposit (CD) equal to 5 percent of the home purchase price. The borrower must provide at least 3 percent of the purchase price from their own funds toward the down payment or closing costs.

    "We continue to see that people may have a good job, good credit but really don't have the down payment," said Kerry Oldenburg, BECU director of mortgage loans. "This is a great way for a family member to help with the down payment without having to spend all of their savings."

    Here's how the PAM works: A relative uses a portion of a retirement nestegg, or other asset, and moves it to BECU in the form of a certificate of deposit with a term of no less than one year. The amount of the pledge must equal at least the difference between 5 percent of the property value and the down payment. So, if the borrower has $3,000 saved to put down on a $100,000 home, the pledged CD must equal at least $2,000.

    The big news is that the sponsor, that is, grandparents, sisters, brothers and parents, don't have to spend the pledged cash. The money is returned with annual interest payments when:

    • The mortgage is paid in full, or
    • When the loan-to-value ratio is reduced to 75 percent of the original appraisal, or
    • If, after seven years, the loan-to-value ratio is reduced to 70 percent.

    Family members who chose to help borrowers should know that interest will be paid on the CD provided the borrower is not in default. Also, the pledge will not be returned if the borrower has been 30 days late with a monthly loan payment during the 12 months prior to the request.

    The PAM also can be self-sponsored. This could benefit a homebuyer who, instead of refinancing the home to take cash out down the road, could forgo the costs of refinancing and have the CD released as soon as the loan is paid down or the home rises in value. The amount of the self pledge is greater. It must at least equal the difference between 10 percent of the property value and the down payment.

    Similar "pledged asset" loans have been offered by First Mutual, Continental and World Savings but the amount of the CD in most of those programs must be equal to 25 percent of the home value. Even though a larger down payment brings lower monthly payments for the borrower, fewer people are willing or able to pledge that much money for an unspecified period of time.

    So, if your grandfather who retired from Boeing years ago said he would "help" with your finances down the road, now's the time to ask. Chances are he will get his money back, with interest.

    He could bet your house on it.



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