It’s been a busy month for the launch of low-down payment mortgages…
It turns out Chase also has a 3% down offering, though it wasn’t widely publicized like the Wells Fargo yourFirst Mortgage was last week. And there might be a reason for that.
Chase Standard Agency 97% Program
The new loan product from Chase is known simply as the “Standard Agency 97%,” which doesn’t sound nearly as innovative as the Wells product, or quite as nifty as BofA’s Affordable Loan Solution.
But that could be the point here. Perhaps Chase doesn’t want to draw a lot of attention to the fact that they offer mortgages with just 3% down, unlike their competitors.
That would explain the lack of a press release. If we dig into the details a bit more, we find that the minimum FICO score on this program is 680, well above the 620 required for the other bank’s programs.
Clearly that makes it less attractive as a marketing piece, especially for first-time home buyers struggling in the credit score department.
Why go with Chase if you can go to a competitor and get approved with marginal credit? And why would Chase boast about a loan program that is more conservative than its rivals?
Chase’s program is based on Fannie’s 97% LTV offering, though it seems to come with overlays that make it less risky, such as that higher minimum credit score.
It appears the Chase program is also more stringent on mandatory borrower funds, with LTVs of 97% requiring the down payment to come from the borrower.
If the LTV is between 95% and 97%, the remainder of the down payment and other closing costs can come in the form of a gift.
For LTVs below 95%, the loan requires nothing from the borrower. That’s obviously pretty sweet but not as liberal as the Wells Fargo product, which allows down payment assistance at 3% down.
Chase Also Has the DreaMaker Mortgage
Before this quiet launch, Chase already touted the so-called “DreaMaker Mortgage,” which is a bit unfortunately-named (or perhaps capitalized) but allows for LTVs as high as 95%, with only 3% of your own funds required.
However, there are income limits tied to this loan, so it’s geared more toward low-to-moderate income borrowers.
It also boasts “reduced mortgage insurance requirements” and apparently has lower monthly mortgage payments than other related options, likely the FHA.
The DreaMaker Mortgage is available on 1-4 unit owner-occupied properties and it appears as if a fixed-rate mortgage is the only game in town.
This product seems to have been around for years now, but isn’t that noteworthy because the FHA’s 3.5% down program has also been kicking around for a long time as well.
Is the Risk Acceptable?
With all these new low-down payment programs comes a new, but familiar discussion about appropriate risk in the housing market.
While today’s 3% down mortgage is probably a lot more sound than the zero down products offered before the most recent housing crisis, we still have reason to worry.
After all, a loan is only as good as it’s collateral, and if home prices take another drive for one reason or another, it may not matter if the loan was fully documented at origination.
Sure, it’s better than that earlier crop of loans seen in 2004-2007, but if borrowers feel they overpaid for their homes and have little to no skin in the game, what’s to keep them from walking?
Especially now that they know the group before them was essentially bailed out when things took a turn for the worse.
Could these 3% down loans be the next problem in the housing market? Time will tell, as it’s still pretty early, but I wouldn’t be surprised if they come back to bite us, especially as home prices keep surging higher.