Washington -- They're called niche products in the home mortgage trade. They're often not advertised to the public, even by the firms that fund them.
But they're big business, and they could be precisely what you need to solve a particular problem -- if you simply knew they existed and where to search for them.
Welcome to the burgeoning world of home mortgage exotica, where the rules for borrowers that you thought were immutably cast in concrete can be very flexible indeed.
For example, say you need substantial cash quickly to invest in a promising business venture with friends. You've got assets but they're relatively illiquid, such as your pension plan and your house. Or they're subject to transaction charges you'd prefer to avoid, like back-end loaded mutual funds.
So how about this: Take out a mortgage equal to 125 percent or even 150 percent of the value of your house.
What?
Aren't there strict rules that mortgage lenders follow that limit the maximum loan amount to some fraction of the appraised market value of your home -- typically no higher than 95 percent? Sure. But there are lenders who'll go not only to 100 percent but to 110 percent, 125 percent of appraised value or higher.
You should be able to find them if you talk to an experienced mortgage broker in your area -- one who has regular working relationships with national, regional and local investors.
The sources of funds, by the way, tend not to be fly-by-night outfits, either. They may be mortgage or consumer finance subsidiaries of large commercial banks.
Here's how 100 percent-plus loans work. Say you need $70,000 cash for personal or investment purposes. You've got a solid income and you've got stocks, bonds and other financial assets you don't want to touch. Your house is worth $200,000, and you have a $175,000 mortgage on it.
Taking out a second mortgage-- even if a local bank would consider it, given your thin equity -- won't raise the cash you need. One solution: A $245,000 refinanced mortgage that stretches the traditional "loan-to-value" (LTV) limits beyond what you ever imagined was possible. The $245,000 equals 122.5 percent of the appraised value of your house.
A mortgage broker in the Maryland suburbs of Washington, for instance, offers competing 100 percent-plus programs from subsidiaries of two large, national commercial banks.
Dale Gray, president of Graylin Mortgage Co. of Rockville, described both programs as "highly selective but quite helpful" for the people who qualify.
Rates are above the going level-- typically bank prime (8.75 percent) plus two percentage points.
The idea here, according to Gray, is that the lender is making a combination of personal loan and mortgage loan, based on the strong credit profile of the borrower. Foreclosure on the house in the event of nonpayment won't provide full recovery for the lender, in other words. But the lender can get a court judgment against the borrower's other assets to satisfy the full debt should the loan go sour.
Kenneth R. Harney is a syndicated columnist. Send letters care of the Washington Post Writers Group, 1150 15th St. N. W., Washington, D.C. 20071.
