Chase tries to carve out mortgage niche with millennials

JPMorgan Chase’s home lending unit is trying to position itself as the solution for millennials who increasingly want to buy their first homes despite rising prices and other affordability hurdles.

In a presentation at Google’s office in New York this month, executives from Chase Home Lending joined the stars of HGTV’s “Property Brothers” to share research findings about prospective first-time buyers. These young adults are showing more interest in buying, the data suggested.

For example, 44% of mortgage searches on Google this year have been for first-time buyer loans. Last year, customers under 35 made up 36% of Chase's mortgage origination volume, up 16 percentage points from 2015.

"One in three [millennials] will be purchasing [homes] in the next five years, so it's even going to be a bigger opportunity for us to work with them in the near future," said Michael Wise, vice president senior lending manager at Chase. "As a result, we really started tightening up our offerings around affordability because we know that's a key focus for them."

The tricky part is doing that while eschewing the Federal Housing Administration insurance program, which is popular among first-time buyers but not, in recent years, among big banks, especially Chase.

Chase helps these millennials overcome barriers to affordability by providing down payment assistance and reducing closing costs.

With Chase's DreaMaker, borrowers can purchase a home with a down payment as low as 3%, and the 3% can be a grant in some instances. Sixty percent of millennials are putting roughly 6% down on average for a home, according to the National Association of Realtors.

To cut closing costs, Chase offers homebuyers a $500 homebuyer education grant for completing a homebuyer education course. A $1,500 Chase grant will also be given to homebuyers whose properties are located in a low- or moderate-income census tract. Both of these grants cover closing costs.

Drew and Jonathan Scott, the twins for whom “Property Brothers” is named, were on hand to illustrate the slogan “It takes two halves to make a home,” the customer being one half and Chase the other. The drift is that borrowers should take advantage of their financial partner’s professional knowledge when exploring loan options.

"The big thing we all keep coming back to is education and working with people that can help you," said Drew Scott.

Though FHA loans are popular among first-time homebuyers, Chase prefers to explore other loan products due to regulatory concerns.

Chase drastically cut its FHA lending in 2015, due, in part, to the risk of a False Claims Act charge from the government. Chase is not alone, as FHA loans have transitioned from being 80% distributed by banks to over 80% distributed by nonbanks.

“The FHA plays a significant role in providing credit for first-time, low-to-moderate income and minority homebuyers,” Chase chairman and CEO Jamie Dimon wrote in his 2016 letter to shareholders. “However, aggressive use of the False Claims Act (a Civil War act passed to protect the government from intentional fraud) and overly complex regulations have made FHA lending risky and cost prohibitive for many banks.”

Amy Sussman/AP Images for Chase

Mike Weinbach, the CEO of Chase Home Lending, stated that in some cases, Fannie Mae and Freddie Mac can offer more affordable down and monthly payments than FHA loans, as well as mortgage insurance policies that are cancelable during the life of a loan, unlike FHA insurance.

"We offer FHA loans, but we’ve [weighed] some of the risks that we see in the product and we think there’s a real opportunity for government and the industry to work together to make it a safer product for banks to participate in," said Weinbach.

"We think it’s healthier to have banks participate more, but with some of the regulatory actions over past years, it’s a little harder for banks to do it as competitively as nonbanks," he said.

At a Washington town hall event in April, Dimon called on regulators to overhaul several mortgage rules enacted after the financial crisis. He explained that post-crisis regulations have made mortgages too costly for consumers and too risky for banks.

In this year's letter to shareholders, Dimon wrote, "No rational person could think that everything that was done was good, fair, sensible and effective, or coherent and consistent in creating a safer and stronger system.”