B of A’s Refi Pitch a Bubble-Era Flashback
Bank of America’s (BAC) recent attempts to get some existing mortgage customers to refinance sounds eerily like a sales pitch from the bubble days of 2005.
“See if refinancing could save you an estimated $4,344 in annual payment savings,” reads the pitch in boldface on a direct mail advertisement sent to a New Jersey borrower last month.
The ad compared the borrower’s current mortgage payment on a 20-year fixed-rate loan with an interest rate of 4% to B of A’s “new loan program” that offers a 30-year fixed-rate at 3.75%. B of A showed a breakdown in which the borrower would be paying two points on the new loan, adding an estimated $8,977 in fees and closing costs. That would increase the overall interest rate to 4.1%, excluding taxes and insurance.
In short, B of A’s pitch, with its focus exclusively on lowering the borrower’s monthly payment, implied that the deal was in the consumer’s best interest, even though the borrower would end up paying a higher interest rate and would be adding 10 more years to the overall life of the loan.