Bank of American Corp. has announced a new strategy to boost the value of mortgages.
The bank is rolling out a program to allow borrowers to choose between paying $300 a month for a low-interest, short-term mortgage and paying $1,200 for a high-interest one.
The program is part of a broader effort by the company to build a strong portfolio of mortgages that are affordable to low- and middle-income families, analysts said in a research note Thursday.
It’s also an attempt to drive down the costs of buying and servicing loans that are used for home equity.
The program has already been tested on borrowers who qualify under a program designed to help those who can least afford to pay more.
It’s unclear how many people will be eligible for the program.
The bank said it plans to roll it out to more than 20 million borrowers.
More from The Wall St. Journal:Bank of America CEO Jeff Bewkes said in an interview Thursday that the company is moving aggressively to increase the value for all mortgages and that the new program “is a good start” in that effort.
Bewkes added that the bank will also soon begin testing out a new way to offer loans for lower payments, including offering some mortgages at less than the full amount.
The new program will likely be a boost to the mortgage lending market, which is struggling to find buyers for its loans.
That could boost the housing market, but it could also hurt some of the nation’s most indebted borrowers, including families who don’t qualify for the government-backed programs.
The programs have led to some big declines in the prices of homes, but the losses have been offset by the gains in mortgage rates.
The U.S. home prices are currently near all-time lows, according to the National Association of Realtors.
Borrowers who qualify for a new loan will get a credit of up to $200 a month and have to pay off the loan by 2029.
That’s far below the $300 monthly payment banks have previously offered.
“The new mortgage program is a first step in helping low-income borrowers with a mortgage that is affordable to them and has good terms,” Bewke said in the interview.
The company will continue to expand the program to other mortgage types, he said.
But the new offer is a boost for borrowers who may not qualify for government-sponsored mortgage programs.
As the bank seeks to improve the financial health of its customers, it has to balance its goals with the need to provide its customers with affordable housing, said John McVicar, an analyst with JPMorgan Chase & Co. in New York.
Mortgage lenders typically take out a lot of money in a mortgage loan, but not everyone can afford the interest rate on their loans.
Some borrowers qualify for loans with lower interest rates, but many don’t, and they can’t get a loan that is acceptable to them, McVacar said.
“It’s very much a test of whether these programs can be successful,” he said, adding that it could be difficult for the bank to scale up and get a larger number of low- or middle-class borrowers into the program, which could hurt the bank’s revenue.