Shape Lending unveiled the new loan at a time when housing affordability has rarely been worse.
Call it a sign of the times, and perhaps an eerie reminder of the housing market of the early 2000s.
But maybe with some extra guarantees this time, like actual underwriting of the loan!
The new product, a home equity line of credit (HELOC), will serve both new homebuyers and existing homeowners looking to access more of their equity.
It will be available both on and across their partner network of lenders, banks, credit unions, loan service providers and home builders.
The new form-specific Piggyback HELOC technology allows for lower down payments
As stated, Figure’s new Piggyback HELOC aims to serve both new homebuyers and current homeowners.
Those still looking for that right property can use a HELOC as a second mortgage that closes simultaneously with the first mortgage, hence the name piggyback.
For example, they can get a first mortgage with 80% loan-to-value (LTV) and a HELOC with another 10% or more. This is known as an 80/10/10 loan.
Other variations include 80/20 loans, which indicates no down payment. These were very popular in the early 2000s.
It’s not clear how high the figure is on this product, but my understanding is that the maximum CLTV is 95%.
In other words, you may be able to get a first and second mortgage with only a five percent down payment. This would be 80/15/5.
Using a second mortgage can help homebuyers avoid private mortgage insurance (PMI) and potentially secure a lower mortgage rate.
Maintaining the first loan at 80% eliminates the need for PMI, may reduce rate adjustments at the loan level, and can help the borrower stay below the conforming loan limit.
Often times, conforming loan rates are cheaper than jumbo mortgage rates. Qualifying tends to be easier for loans backed by Fannie and Freddie, too.
New homebuyers can combine it with a cash-out refinance
If you’re an existing homeowner, the figure says you can use a “move to a less expensive alternative.”
They cite an example where a recent homebuyer wanted to tap into equity through a cash-out refinance, but was subject to an 80% LTV cap on agency loans backed by Fannie and Freddie.
Even if they originally purchased the home with a down payment of less than 20%, it may be possible to reduce the first mortgage to 80% LTV and lower the PMI while dealing with the second mortgage to get a combined LTV higher.
For example, someone who bought a home for $450,000 with a 10% down payment may be able to get a new first mortgage at 80% LTV and add an additional 15%.
In the process, they gain access to more of their home equity, but they also put themselves in a position where they owe more and could be closer to being underwater if home prices drift lower.
Figure offers HELOCs up to $400,000 in size, meaning the loan amount shouldn’t be a barrier for most borrowers.
HELOCs are a little different in format
Figure calls itself the #1 non-bank home equity line of credit in the United States.
Although only launched in 2018, the pro forma lending program has already established more than $12 billion in home equity lines of credit.
Part of this incredible growth can be attributed to their use of technology, including a 100% online application process, no appraisal/title fees, and e-Notary services in many states.
The process can be done quickly, with funding in less than five days.
But I should note that their HELOCs require a full withdrawal on the line amount at closing. They charge a set-up fee based on this withdrawal, ranging from 0 to 4.99%. So the costs can be prohibitive.
Their HELOCs are also fixed-rate loans, which is strange because most HELOCs are variable and tied to the prime rate, which rises or falls whenever the Fed changes the federal funds rate.
For your information, key interest rates are expected to fall over the next year as the Federal Reserve eases its monetary policy.
Figure’s HELOC is already offered by some of the largest mortgage lenders out there, including CrossCountry Mortgage, Fairway Independent Mortgage, Rate (formerly Guaranteed Rate), Move Mortgage, Union Home Mortgage, and many more.
The company’s products are now available in 49 states and the District of Columbia.
(image: Low Jianwei)
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