New mortgage product would cut closing costs GE insurance asks for less upfront

June 24, 1993|By Ellen James Martin | Ellen James Martin,Staff Writer

WASHINGTON -- A monthly mortgage insurance product unveiled yesterday by GE Capital Mortgage Insurance Corp. -- and expected soon to become standard in the industry -- could reduce home closing costs substantially for borrowers nationwide.

Under the program, a borrower would pay a one-month mortgage insurance premium, rather than the traditional 12-month premium, when closing on a home sale. The borrower would thus reduce the private mortgage insurance premium paid in advance.

Private mortgage insurance protects a lender in the event that a homeowner defaults on a conventional mortgage -- one not backed by a federal insurance program. Lenders usually require such insurance when a buyer puts less than 20 percent down on a home purchase.

"The guts of it is that it reduces the cash needed at closing," Mark E. Goldhaber, a vice president at GE Capital, said after a news conference here to unveil the product.

GE estimates that its payment method would reduce borrowers' closing costs by 9 percent to 22 percent. The company's calculations are based on closing costs equalling 2.2 percent of the home's purchase price, not including mortgage insurance.

GE estimates that on a median-priced home in the Baltimore area, selling for $113,400, the closing costs would be cut by $589. The upfront cost for private mortgage insurance, as well as for the subsequent monthly payments, would be $57 -- $3 more than the normal monthly payment.

Real estate executives in the Baltimore area said the new program could significantly lower the hurdles to home ownership in Maryland, where closing costs are among the highest in the nation.

"This ought to help across the board with sales," said Fletcher Hall, executive vice president of the Greater Baltimore Board of Realtors. More than 75 percent of Baltimore-area home buyers take out conventional mortgages, he said, and many of those put less than 20 percent down.

Mr. Hall predicted that first-time home buyers, who are often the shortest on cash, would benefit most from the program.

Officials of GE Capital, based in Raleigh, N.C., said yesterday that the monthly mortgage payment program was possible because computer links among their offices and those of mortgage lenders have made monthly billing cost-effective.

GE's new program should be available to consumers through lenders in Maryland within about three weeks, GE officials said.

Within 18 to 24 months, the monthly payment option is expected to become standard in the industry, said Ralph Mozilo, executive vice president of Countrywide Funding Corp., a California-based lender with offices in Maryland.

GE Capital Mortgage Corp. is a subsidiary of the General Electric Corp., based in Fairfield, Conn.

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