[Update: This article is updated with a quote from Chase in regards to the new loan program.]
Prospective homebuyers, especially first-time homebuyers who are struggling to save up for a down payment, have a new, and significant, outlet that they can now turn to when seeking a low down payment mortgage — JPMorgan Chase.
Earlier this year, Bank of America announced plans to begin offering a 3% down mortgage lending program that did not involve the Federal Housing Administration, important considering how many lenders have recently run afoul of the federal government for the participation in FHA lending.
Bank of America’s program requires as little as 3% down and requires no mortgage insurance. Bank of America partnered with Self-Help Ventures Fund and Freddie Mac to offer the loan program, which also requires a minimum FICO score of 660.
And earlier Thursday, Wells Fargo rolled out its own 3% down lending program, partnering with Fannie Mae and Self-Help, with the aim of offering consumers lower out-of-pocket costs, expanding the lender’s credit criteria and pushing homebuyer education to help more first-time homebuyers and low- to moderate-income families achieve “sustainable homeownership.”
Wells Fargo’s program requires a 620 FICO score, but Greg Gwizdz, executive vice president of national retail sales with Wells Fargo, said that the FICO score is only a small portion of the loan’s underwriting standards.
While Wells Fargo’s announcement was made on a large scale, JPMorgan Chase launched its own 3% down mortgage program, albeit much more quietly.
Chase’s 3% down mortgage program was actually spotted by mortgage industry insider Rob Chrisman, who revealed details of the program on Thursday.
HousingWire contacted Chase which confirmed the details of Chrisman’s report.
According to Chrisman and Chase, the megabank recently rolled out a loan program it calls the “Standard Agency 97%” program, which offers customers the opportunity to put down 3%.
The loan is designed for first-time homebuyers who have limited cash for a down payment and closing costs. A representative from Chase confirmed to HousingWire that this new program is done with Fannie Mae backing.
As Chrisman noted, Chase’s new loan program requires only a 3% down payment from a customer's own funds.
For loans with loan-to-value ratio greater than 95% to 97%, the remainder of the down payment and closing costs can come in the form of a gift, Chase confirmed.
Additionally, consumers who take part in the program can actually put 0% down on any loan with a LTV lower than 95%.
Now, the lending standards are more stringent than the similar programs of Bank of America and Wells Fargo. To take part in the Chase program, customers must have a FICO score of 680 or higher and at least one customer must be a first-time homebuyer.
“We are constantly innovating by exploring new products and enhancing existing ones to meet the needs of our customers across the credit spectrum,” Steve Hemperly, Chase’s head of mortgage originations, said in a statement.
Chase also told HousingWire that the loan features no upfront mortgage insurance premium and features no income limits.
“We have several lower down payment options and there is interest and a need for these products,” Fannie Mae said in a statement. “We believe these loans can be done safely and are pleased that Chase will now offer our standard 97% LTV option.”
Chase’s foray into low down payment lending with government-sponsored enterprise backing is interesting, especially when considering that earlier this year, JPMorgan Chase CEO Jamie Dimon openly questioned why the megabank was still in the mortgage business at all.
“The mortgage business can be volatile and has experienced increasingly lower returns as new regulations add both sizable costs and higher capital requirements,” Dimon wrote in his yearly letter to shareholders.
“In addition, it is not just the cost of the new rules in origination and servicing, it is the enormous complexity of those new requirements that can lead to problems and errors,” Dimon continued. “It is now virtually impossible not to make some mistakes – and as you know, the price for making an error is very high.”
So why is JPMorgan Chase staying in the mortgage business? For its customers, Dimon said.
“Mortgages are important to our customers. For most of our customers, their home is the single largest purchase they will make in their lifetime,” Dimon wrote.
“More than that, it is an emotional purchase – it is where they are getting their start, raising a family or maybe spending their retirement years,” Dimon continued. “As a bank that wants to build lifelong relationships with its customers, we want to be there for them at life’s most critical junctures.”
And now Chase is ready to help its customers while pivoting away from the FHA.
Dimon said in his shareholder letter that FHA lending is currently “too costly and too risky” to pursue extensively.
“We have dramatically reduced FHA originations,” Dimon wrote. “Currently, it simply is too costly and too risky to originate these kinds of mortgages. Part of the risk comes from the penalties that the government charges if you make a mistake – and part of the risk is because these types of mortgages default frequently.”
While Dimon stated that the bank is cognizant of the risks that come with lown down payment lending, that’s not going to stop Chase from developing programs to help its customers.
The “Standard Agency 97%” program isn’t Chase’s only low down payment program.
Chase also offers a loan program it calls “DreaMaker Mortgage, which requires only 5% for a down payment (3% of which can come from the borrower themselves), and offers flexible funding options for closing costs, reduced mortgage insurance requirements and lower monthly payments compared to other options.
That program requires a lower FICO score than the “Standard Agency 97%” and also has an income limit requirement.
For now, the “Standard Agency 97%” is available for buyers who qualify, and Chase plans to make “further enhancements” to the program in the coming months.
(Image above courtesy of Daryl Lang / Shutterstock.com)