Just 8% of CNB's borrowers were minorities vs. 46% at other banks,
the DoJ complaint alleged.
By JEFF LAZERSON | firstname.lastname@example.org | MortgageGrader.com | September 18, 2023
Article originally posted in Orange County Register on September 15, 2023.
As part of a lending discrimination settlement with the Department of Justice, City National Bank has created a $29.5 million fund to help marginalized communities get into the home-buying market.
The Los Angeles-based bank, on Sept. 12, launched its Ladder Up Home Loan Program, which requires just a 3% downpayment while also providing downpayment grants for homebuyers in majority-minority neighborhoods across Southern California.
According to the Justice Department’s 2017 complaint against CNB, just 8% of its LA-area mortgage applicants were from majority-Black and Hispanic census tract residents. CNB’s peer group generated 46% of their applicants from the same tracts. The bank and the Department of Justice agreed to settlement terms in January.
To help with costs, Ladder Up borrowers get to skip the standard mortgage insurance requirement typically applied to those who put less than 20% down.
Grants available through Ladder Up amount to 3% of the mortgage for a maximum of $15,000 (the lesser of the two values) to help with a down payment, closing costs or a mortgage rate buydown.
The program’s maximum loan amounts mirror those at Fannie Mae for six Southern California counties, according to Vanessa Montañez, senior vice president and head of community lending at CNB.
Here’s what that looks like in the region’s qualifying census tracts:
—Oxnard-Thousand Oaks-Ventura’s maximum loan amount is $948,750.
—Los Angeles County and Orange County max out at $1,089,300.
—Riverside-San Bernardino-Ontario cap at $726,200.
—San Diego-Chula Vista-Carlsbad tops out at $977,500.
The cherry on top is a competitive mortgage rate for a 30-year fixed. “It’s 6.9% to 7% and no points,” said Montañez. The lowest middle FICO score allowed is 680.
Now, let’s compare CNB’s program to mortgage giant Freddie Mac.
This week Freddie Mac’s average conforming mortgage rate posted 7.18% on loan amounts to $726,200.
Freddie Mac no longer tracks points in its survey, and it never tracks so-called high balance or agency jumbo rates ($726,201 to $1,089,300).
Locally, I found a high balance fixed at 8.125% without points (assuming a 5% down payment and a 740 middle FICO credit score). CNB is more than 1% lower. I could not find any zero-point pricing, assuming a comparable 680 FICO score.
Separately from a $15,000 grant, for example, how much is CNB going to save a borrower in payments compared with FHA financing?
Let’s start with a $600,000 sales price. Assuming 3% down or $18,000, CNB’s loan amount is $582,000. Based on a 30-year fixed at 7%, the principal and interest payments are $3,872. Remember, no monthly PMI. Add in monthly property taxes at $625, assuming a 1.25% annual tax rate.
Let’s loosely assume homeowners insurance at $175 per month. And no association fee.
The total payments are $4,672 per month. Not bad! (Borrowers would need $10,400 per month or $124,800 annually in income to qualify for the Ladder Up program, assuming no other significant bills.)
For an FHA loan with the same sales price, the agency requires a 3.5% minimum down or $21,000. Then add 1.75% of upfront mortgage insurance to the $579,000 base loan amount for a new loan amount of $589,132. Assuming a 6.75% 30-year fixed mortgage rate without points, the principal and interest payment is $3,821. The monthly mortgage insurance is $265. Adding these figures plus the same property taxes and homeowners’ insurance shows a total payment of $4,886.
Excluding the $15,000 grant, CNB’s monthly payment would be $214 lower.
Other lenders do not offer this mortgage program. Borrowers must apply directly through CNB.
Here is the fine print:
— Family income (adjusted for family size) cannot exceed 150% of the area median income to be CNB program eligible.
—You can use non-occupants as co-borrowers. The non-occupant co-borrower’s income does not count toward the income cap. That’s a big deal and a big opportunity to qualify for a more expensive home.
—All in, you can go to a 45% ratio. That is total house payment(s) and other debts divided by total monthly income. That’s a heck of a ladder with just 3% down and no mortgage insurance.
—The home must be in a majority-minority census tract as calculated by the FFEIC census geocoder. This program is not restricted by race. You do not have to be a protected class (Black or Brown) to be eligible.
—Borrowers do not have to be a first-time homebuyer. (First-time buyers are defined as those who have not owned a home in the last three years). You just can’t currently own a home.
—Single-family homes, condos, townhouses and manufactured homes on permanent foundations are all eligible. You can even go up to two units but will need to put 15% down, according to Montanez.
You can use Ladder Up in conjunction with other down payment assistance programs, too. One good place to check is Down Payment Resource.
And yes, you can refinance an existing primary residence so long as you fit within the census tract and income parameters, and you have at least 3% equity in your home.
For that person or family who bought it in the last year or so, especially someone who may have put little down, you might save a boatload if you are eligible.
There are no seasoning requirements to refinance, according to Montañez. This means you could have closed on a home purchase yesterday.
Whenever these funds run out, CNB’s plan is to get its board approval for another round of funding. Regardless, I would sprint to this bank and apply if you think you might be eligible.
To date, the Ladder Up program is the best affordable mortgage I’ve ever written about. It’s too bad it took government intervention to make it happen.
Freddie Mac rate news: The 30-year fixed rate averaged 7.18%, 6 basis points higher than last week. The 15-year fixed rate averaged 6.51%, 1 basis point higher than last week.
The Mortgage Bankers Association reported a 0.8% mortgage application decrease compared to last week.
Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $726,200 loan, last year’s payment was $556 less than this week’s payment of $4,920.
What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages with one point: A 30-year FHA at 6.25%, a 15-year conventional at 6.25%, a 30-year conventional at 6.625%, a 15-year conventional high balance at 7% ($726,201 to $1,089,300), a 30-year high balance conventional at 7.25% and a jumbo 30-year fixed at 7.125%.
Note: The 30-year FHA conforming loan is limited to loans of $644,000 in the Inland Empire and $726,200 in LA and Orange counties.
Eye catcher loan program of the week: A 30-year VA fixed rate at 5.875% with 2 points cost.
Jeff Lazerson is a mortgage broker. He can be reached at 949-334-2424 or email@example.com. His website is www.mortgagegrader.com.
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Jeff Lazerson - Mortgage Columnist since 2011