Chicago Banks Collaborate, Offer Down Payment & Second Mortgage Aid to Buyers

Coming up with 20 percent of a home’s price for the down payment can be a steep hurdle for a prospective home buyer - and can delay a home purchase for years.

After all, buyers who can’t put down 20 percent are generally required to buy mortgage insurance, which can come to as much as another $250 a month on top of the mortgage payment.

To help low- and moderate-income buyers in Chicago’s South Side avoid this extra cost, the Chicago Sun-Times reports that Marquette Bank and South Side Community Federal Credit Union have started a new program that uses a second mortgage for a portion of the down payment.

Payments on the 2nd mortgage would be about half the cost of mortgage insurance, and the interest is tax deductible, explained Mike Mangin, executive vice president of retail lending for Marquette Bank, which has nine of its 25 branches on Chicago’s South Side.

“This will be an alternative for some people out in the subprime (or bad credit mortgage) market really getting whacked with loans,” Mangin said.

The program, which functions similarly to piggyback loans, is offered to members of the credit union. Membership is limited to those who live, work, worship, attend school or participate in an association in a specific area defined by the city.

The program combines the first mortgage originated by Marquette Bank with the second mortgages originated by South Side Community Federal.

The first mortgage will amount to no more than 80 percent of the total value of the property being purchased, combined with a second mortgage in the amount of the difference between the borrower’s down payment and the first mortgage.

As part of the program, Marquette will offer a closing cost credit of up to $1,000, plus up to $3,000 in grants for down payment assistance. South Side Community Federal requires buyers to receive home buyer education and counseling, and show they have enough income to cover home payments.

Similar partnerships have been formed between banks and churches, said Paul Smith, senior counsel for the regulatory policy for the American Bankers Association. But Smith said he has never heard of a bank and credit union joining for this type of program.

“For people who qualify, I think it would be terrific,” Smith said. He said one of the problems in the affordable housing market is that so many people have trouble paying for closing costs, much less 20 percent down.

Smith said the credit union will have to choose its buyers carefully, since a second mortgage loan generally entails greater risk to lenders.