HomeComings Financial Network, a subsidiary of GMAC-RFC, will begin tinkering on a limited basis with a new statistical method of originating 125% loan-to-value mortgages that, if successful, might change the entire high-LTV loan-origination process, sources at the company said.
Dubbed a prototype, the program has yet to be initiated, and from a securitization standpoint, these loans would not enter the asset-backed securities arena until next year, perhaps June, a source predicts.
In a traditional second mortgage, a borrower's home is professionally appraised for value, whereas with a 125% loan, using the "stated value" method, borrowers estimate the value of their home. These high-LTV loans are typically no more than $35,000.
The new process HomeComings is testing, will extend the loan ceiling to $75,000, and will be based on a statistical analysis, versus stated value.
Because a loan exceeding $35,000 would normally require a professional appraisal, this new method will "make it a little faster and more streamlined for the consumer to get the loan done, and probably reduce their cost by about the cost of an appraisal," the source said. "The second thing it will do is probably speed up the process by about five days."
According to an investor at GMAC-RFC, when the loans eventually enter securities, they will likely be packaged along with traditional 125% loans, rather than separately.
"I think as a substitute for stated values it can be seen as nothing more than a positive, ," the investor said. "You're attempting to remove subjectivity and replace it with something that is a methodology.
"In the few discussions that I've had, I think all parties involved in the securitizations of these products, including the ratings agencies, have seen it as positive," the source said.
Over time, if this new process proves successful, RFC's originations might "evolve from one method to 100% another," the source said.