Pledged Retirement Accounts

In terms of popularity, Elmer Frank adds, "Retirement accounts have become one of the most frequent sources of pledged collateral for our firsttime buyers. We don't even require that the account belong to the buyers. We'll accept funds from any close family member. On no-down-payment mortgages, we usually like to see 30 percent, but for good customers, we've gone as low as 20 percent."

"In other words," Elmer continues, "we'll give buyers a no-down-payment, 100 percent loan, if, say, those buyers (or close relatives) move enough of their 401(k) funds to our bank to offset 20 or 30 percent of the property's purchase price. Last week, we closed a loan for a young couple in their thirties who bought a $365,000 duplex. Between them, they had good credit and earned $90,000 a year, but little savings because they're rapidly paying off student loans. We financed their full purchase price without PMI, and the wife's mother deposited $85,000 of her 401(k) monies with us.

"As long as the couple keeps their loan current, we won't touch the pledged collateral. As soon as the couple's mortgage balance falls below an 80 percent LTV and as long as they've kept a clean payment record, we'll release our lien against the 401(k) certificates of deposit."

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