Bank of America Cuts Mortgage Closing Costs

by Amy Lillard

One of the largest banks in the country has tackled the area that hurts many mortgage borrowers most.

Bank of America Corp. rolled out a nationwide no-fee mortgage this month, eliminating the typical mortgage closing costs that can total thousands. The bank will not charge borrowers for loan applications, title insurance, appraisals, flood certifications, or private mortgage insurance.

This new program eliminating closing costs is part of a far-reaching effort by the bank to get more of existing customer's business. Bank officials note that the typical mortgage customer has multiple other accounts with the bank. An attractive mortgage program such as this encourages these existing customers to stick with the bank.

Additionally, insiders say that the program is a major effort to tap into the mortgage industry. Even with U.S. home sales running 14 percent below last year's level, the company wants to encourage more investment in private property. Currently, the company controls about five percent of the mortgage industry's direct-to-consumer market share. Bank officials say they would like to more than double that in the next three years.

According to preliminary figures, Bank of America's plan may be working. In markets where the bank tested the program, lending was boosted by half, bank officials said. When the loan debuted nationally at the beginning of May, it produced the most applications for home purchases in the bank's history.

The no-fee mortgage attacks the most worrisome and complex part of the mortgage process, according to bank officials, and does away with the final sticker shock of unexpected costs at closing. On a $200,000 loan, for example, an average $3,350 is assessed in closing costs. Bank officials say that this program allows borrowers to plan accurately and simplifies the entire mortgage process.

Borrowers qualify for the program if they have at least one account with Bank of America and obtain their loan through the bank's retail channels. Customers must pay a down payment of at least five percent. The loan is not available to subprime consumers, those whose credit histories or low incomes translate to higher interest rates.

Bank of America is the first major bank to waive traditional closing cost fees. In particular, the new guideline that eliminates private mortgage insurance is a boon. Typically, banks require PMI to protect themselves against default when mortgages exceed 80 percent of a home's value. The bank does stipulate that other fees, such as property insurance, property taxes, recording taxes, and home inspections, are those voluntarily chosen by the customer and not included in the program.

Bank of America introduced this program as a test in Washington in September. They rolled out the no-fee mortgage to eight additional states in February. As of this month, the “No Fee Mortgage Plus” is available nationwide.