JP Morgan Chase has quietly launched their first 3% down mortgage lending program, providing a low-cost outlet for first-time homebuyers — backed by lending giant Fannie Mae.

The Program

Chase’s new program is the latest in a recent trend of lenders offering non-FHA-affiliated mortgages, alongside similar initiatives from Bank of America and Wells Fargo (announced January 2016 and just last week, respectively). The Chase program comes with a comparatively restrained set of standards, requiring a minimum 680 FICO score and first-time-homebuyer status for at least one signer.

Chase representatives provided more detail to HousingWire in May, stating that the initiative (called “Standard Agency 97% Program”) will allow customers with a 95 to 97% loan-to-value (LTV) ratio to make additional contributions in the form of a strings-free gift. This can greatly bring down closing cost and down payment obligations. Even more intriguingly, customers with a sub-95% LTV are allowed to put 0% down. The program as a whole is designed to incentivize interested customers with low liquid assets to buy immediately and create a “sustainable ownership” model for moderate incomes.

The Rationale

FHA lending has been a sore spot for many lenders in recent months, with the Department of Justice cracking down on alleged violations by organizations like Guild Mortgage. In fact, Chase CEO Jamie Dinmon indicated that the company may be moving away from real estate lending altogether as recently as this April. In a yearly shareholder letter, he cited high-stakes compliance efforts and accompanying lack of room for error as a major disincentive to continue providing these loans.

So why the change of heart? Customer relations. Dimon stated that while Chase is moving away from FHA loans, it will continue to pursue Fannie Mae-backed originations to create and sustain lifelong relationships with homebuyers. From the organization’s view, the program is more of an investment in customer partnership than in dramatic financial returns.

A New Tradition

It’s important to remember that while the Standard Agency 97% is a significant move for Chase’s courtship of low-asset homebuyers, it’s not by any means their first foray into the arena. The organization has provided a 5% down “DreaMaker Mortgage” program for several years, which also includes flexible closing options, looser insurance requirements, and reduced payment plans. However, the approval standards — a lower FICO score and specified income limit — makes the Standard Agency an appealing choice for qualifying buyers.

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