NEW YORK Bank of America Corp. (BAC.N) on Monday said its new no-fee mortgage product has triggered a jump in applications to buy homes, and that it plans this year to develop products to attract U.S. homeowners who need or want to refinance.
Speaking at the Reuters Real Estate Summit in New York, Floyd Robinson, Bank of America's president of consumer real estate and insurance services, said the pace of mortgage applications is up 40 percent from a year earlier, after adjusting for changes in overall market activity.
Introducing "market changing" products is one way the Charlotte, North Carolina-based bank tries to get customers in the door and then sell them more products. Last fall the bank began to eliminate online stock trading fees for customers who kept at least $25,000 on deposit.
Robinson said the bank's average mortgage customer uses an additional 5.6 products -- such as checking accounts, credit cards or home equity loans -- within two years.
"You have to have a product like No Fee Mortgage PLUS which is so market-changing, that you begin to drive people to you," Robinson said. "We're doing some market tests (on refinancings) to determine what we want to do that could, to some degree, move the market in a way the purchase product has. We really need to figure out what resonates with our customer base."
He told Reuters TV that such a refinancing product could be launched "by the first of next year at the latest."
Borrowers with hundreds of billions of dollars of adjustable-rate mortgages are expected to see rates reset higher this year and next. Moody's Economy.com said $450 billion of these loans will be "subprime," or lower quality.
Bank of America's $167.5 billion of mortgage originations in 2006 ranked sixth nationwide, according to National Mortgage News. That trailed Countrywide Financial Corp. CFC.N, Wells Fargo & Co. (WFC.N), Washington Mutual Inc. (WM.N), JPMorgan Chase & Co.'s (JPM.N) Chase Home Finance and Citigroup Inc.'s (C.N) CitiMortgage.
Under the no-fee product, homebuyers aren't charged for such things as applications, appraisals, loan originations, title insurance and flood certifications. They are still responsible for such things as property taxes, homeowner's insurance, inspections and recording fees.
Robinson said no major U.S. mortgage lender has created a similar product since Bank of America launched it on April 23. Bank of America keeps loans it originates on its balance sheet, which had $1.5 trillion in assets as of March 31.
"Take 90 percent of the competitors who don't have a balance sheet. They can't do this product because they have to sell what they originate," Robinson said. "My feedback I'm getting from the industry is they're trying to find some way to sell against it."
One thing Bank of America will not do is venture back into subprime mortgages, or home loans to people with weak credit histories. It quit that market in 2001, though Robinson said 2 percent of the bank's home loans go to people with FICO credit scores below 620, often considered the cutoff for subprime.
"We have an advantage in that we have a huge amount of customer data," said Robinson. "We know that someone at Bank of America who has a 560 (FICO score) who has a $5,000 demand deposit account for the last two years, really performs like a 660. Our customers could be advantaged because of their broader relationship. Some people would call that subprime. Call it what you want. It would not be priced the same way."
But he added: "There is no appetite for us today to be in the traditional subprime business ... We're not going to be in the subprime business as we speak."
(For more on the Reuters Real Estate Summit, see <ID:nSP151663>
(For summit blog: summitnotebook.reuters.com/)
(Reporting by Jonathan Stempel)