Adding Financial Security to the Home-Building Process By Maria Patterson
What could be more thrilling than building your dream home? Watching step-by-step as the plans you’ve put on paper come together during the construction process.
For many home-building consumers, however, the dream can quickly turn into a nightmare if financing goes awry. A sudden hike in interest rates can, without warning, put the prospective homeowners into a hole they cannot climb out of. With the new Chase Lock-SolidSM program, however, much of this financial concern can be alleviated, thanks to the opportunity to lock in rates for home- and condominium-building clients for up to two years.
According to Susan Barber, strategic alliance and corporate business executive for Chase’s Home Mortgage division, the timing couldn’t be better for the Chase Lock-Solid program. “In the current rate environment, which is a little uncertain, buyers are looking for protection during the time of construction,” she explains. “The program Chase designed allows our builder, developer and Realtor relationships to offer their customers the added peace of mind that these long-term rate locks provide.”
Richard Miller, national builder executive for Chase, agrees. “If a consumer does not elect to obtain a long-term lock or does not have access to one, the number-one risk they face is that they might not qualify for the home purchase when the time comes to go to settlement,” says Miller. “Since they’re under contract, however, they are still obligated to go forward with the contract. Now they’re faced with the prospect of carrying much higher payments than anticipated and this can put real stress on a household.”
How it Works
“Basically what we branded as Chase Lock-Solid is a long-term rate lock program whereby borrowers can lock in interest rates for a period of up to 24 months,” says Miller. “We launched the program in May 2005 and have enhanced it two or three times since then.”
The current Chase Lock-Solid program enables borrowers to lock in to today’s still-favorable rates for up to 24 months on a wide range of ARMs, including interest-only loans and up to 12 months on 15 and 30-year fixed-rate loans.
According to Miller, this program offers consumers something different from what’s currently available on the market. “The primary difference is that our long-term lock program does not have any rate add-on,” he explains. “We simply add to the points and base that off of the current 60-day rate lock price. You’re locking in an interest rate today that you’ll get when you close on your house a year from now. There are some add-ons to the points, depending on the length of the lock. For the six-month lock, which is the most popular, there are no add-ons.”
The Chase Lock-Solid program also features a “Float Down” option, allowing buyers—at no additional price—to take advantage of a one-time option anytime within 60 days of closing to float their locked-in interest rate down to a current, lower interest rate.
“The float-down feature with the ability to change loan programs is truly unique to this particular product,” says Barber. “We are extending some of these rate-lock options through all of our affiliated arrangements and outside of retail to our strategic partnerships as well.”
“In this environment, if I were a betting man, I would say there are not the highest odds in the world of rates coming down, but you never know,” says Miller. “If rates do decline within that window, it gives consumers the comfort of knowing that they’ll get a lower rate.”
Chase has designed the Chase Lock-Solid program to include as much flexibility as possible. Should construction lag beyond a 12- or even 24-month period, consumers can request an extension for a nominal fee, Miller explains.
Building Builder Relationships and More
According to Miller, the Chase Lock-Solid program is part of Chase’s aggressive campaign to gain a top-three market share in the building market. “In order to do that, we have to have a competitive long-term rate lock program to attract builders and builder-centric loan officers,” he explains. “The program was designed, from the builder’s perspective, to protect the pool of qualified buyers from rate increases.”
The program has been received with “wide open arms” in the builder community, says Miller, because the market for long-term locks has historically been limited to a very few players.
“With Chase entering the arena, we bring a strong brand name that builders feel comfortable conducting business with,” he says.
The Chase Lock-Solid program also helps Realtors build client relationships, Barber explains. “A lot of Realtors are partnered with builders and may be handling a certain site or subdivision,” she says. “This program allows them to sell more homes on behalf of the builder.”
This is part of Chase’s overall business strategy, says Barber. “We will definitely continue to build out our builder products and programs,” says Barber, “so that we have that market advantage to secure relationships and increase our market share for our Realtor partners and to bring them into the fold through our relationships and joint venture partnerships we have with builders.”
Program Perks
The Chase Lock-Solid Platinum program features include:
Free six-month rate lock with deposit
Ability to lock an interest rate for up to 360 days before closing
Option to “float down” to a lower interest rate at no extra cost within 60 days of closing
One-time switch to any eligible Chase mortgage loan product within 60 days of closing with current pricing at no extra cost
A Building Bubble?
According to Richard Miller, national builder executive for Chase, while the new-home construction market will not continue to experience the boom of recent years, it is still expected to be a healthy market.
“From my perspective, we’re clearly coming off a five-plus year bull run in new construction,” says Miller. “But the definition of a cycle is that it has to have a beginning and an end. We think we’re about midway through. It’s what I would deem a soft landing.”
That said, Miller expects a 7–8% decline this year in new home sales from 2005. “We’ll probably finish up in the top five this year in terms of all-time record years, despite interest rates,” he explains. “New household formation is expected to come in at 1.5–1.7 million this year and grow 5–10% per year thereafter. The new housing stock will need to be replenished to accommodate the new household formation.”
Miller adds that the one contributing factor to the marketplace that will be missing this year and next is the number of investors coming into the market. The “flip-and-profit” days of real estate may be over for a while. “This will have an impact on the hottest markets and will have some impact regionally on home sales and prices and rising inventories,” says Miller.
Miller believes that the Baby Boomers will continue to play a pivotal role in the growth of new housing stock. “Overall, I’m still cautiously optimistic because of new household formation and the vast array of financial options available. Our industry is extremely good at reacting in times of need.” |
