Achieving the American dream of home ownership has never been as simple as just paying for the house itself. There are always the closings costs to pay for, too.
But looking to further grow its mortgage business and expand its traditional retail banking operation, Bank of America is doing away with the collection of borrower, lender and third-party fees that typically add a few thousand dollars to the price of buying a home.
"Knowing Bank of America, they want to be the leader in this space, and given the competition today, the product makes sense," said Anthony Sanders, a professor of finance at Ohio State University. "It's a good move for them, especially if they want to gain more customers."
Bank of America, the nation's second-largest by assets, began offering customers in Washington state a similar no-fee mortgage in September, spending more than $1 million to advertise a loan that eliminated an average of $2,800 in traditional closing costs for customers there.
In February, the bank rolled out the mortgage to eight additional states. It has been available nationally for about two weeks, and a national advertising campaign starts Tuesday for the bank's "No Fee Mortgage Plus."
The loan from the Charlotte-based bank also cuts out private mortgage insurance, a premium typically paid by borrowers whose down payment on a home is less than 20%. The bank is also guaranteeing customers the best deal on a mortgage and an on-time closing.
Borrowers have to put at least 5% down, and the loan is not available to subprime consumers, those who pay higher interest rates because of sketchy credit histories or low income. They can choose to pay interest and principal, or make interest-only payments.
Floyd Robinson, Bank of America's president of consumer real estate and insurance services, said the loan eliminates, on average, $3,350 in closing costs on a $200,000 loan.
"We believe that No Fee Mortgage Plus is a product that actually takes complexity out of the mortgage environment," Robinson said. "It simplifies the whole process for our customers and provides a much lower-cost solution for their home buying needs."
At $247 billion, Bank of America's outstanding residential mortgage portfolio was worth more than all of its commercial loans combined at the end of the first quarter. Still, both industry experts and bank executives have said mortgages are a market Bank of America has yet to fully tap. The company controls about 5% of the mortgage industry's direct-to-consumer market share, and bank officials said they would like to more than double that in the next three years.
Winning new business in mortgages also offers the bank another way to win new deposits and new business as consumers try other products or move assets to the bank. Bank officials say they typically are able to cross-sell an average of 5.3 additional products for every mortgage customer.
"This is about a relationship more so than about a single product sell," Robinson said. "We are here to build relationships, to become the trusted adviser for the customer."
Two weeks ago, Seattle-based Washington Mutual said it would begin offering a new mortgage and home equity line of credit bundled into a single loan.
Other national retail banks, including San Francisco-based Wells Fargo & Co., New York's JPMorgan Chase & Co. and Wachovia in Charlotte, offer home equity loans that waive some traditional fees. But none has a mortgage that eliminates closing costs.
"I think there will be a lot of 'my interest rate is lower than yours,' but the key here is for consumers to shop around," Robinson said.
During the Washington state pilot program, he said only 60 customers out of 11,000 mortgage applications went elsewhere. "We encourage them to shop around, because this is the best value," he said.
That's what Dixie Henderson said she got earlier this year. The 46-year-old first-time home buyer from Las Vegas borrowed $225,000 earlier this year, when Bank of America was testing the program in Nevada. She has a 30-year fixed-rate loan with an interest rate of 6.34% and a mortgage payment of $1,200 a month.
"For Las Vegas and an excellent location, that's not a bad deal," Henderson said. "I've had no problems, no troubles, no complaints."