As down payment assistance became a feature in the traditional mortgage market, the ability to offer down payment assistance to a potential borrower—and to offer it in greater amounts—became even more important. Unfortunately, sometimes the most efficient bond structure for an issuer precluded issuing a portion of the bonds at a premium. Also, the amount of assistance that could be provided in a premium bond program was limited by bond investor concerns over the amount by which the mortgage rate increased. In addition, issuers recognized that in most areas, the first-time home buyer requirement eliminated about two-thirds of low to moderate income borrowers from participating in their mortgage lending programs. There was a clear need for down payment assistance from some source other than premium bonds. To address this need, George K. Baum & Company developed the ability to structure bond issues backed entirely by second mortgage loans. To our knowledge, we are the only investment banking firm able to offer such a program.

Our second mortgage program can provide an issuer with the ability to offer a lending program that can provide down payment assistance in as much as eight percent of the first mortgage amount. In exchange for the down payment assistance, a borrower enters into a second mortgage which can have an amortization schedule of as long as 30 years. By separating the funding sources of the primary mortgage requirement and the down payment assistance, issuers are now free to offer an expanded menu of program options than simply a tax-exempt bond funded program.