By Maria Patterson
RISMEDIA, July 3, 2007—As the market slows and foreclosures rise, many are pointing the finger at the lending industry, under fire for pushing exotic mortgages and stretching borrowers’ budgets to the breaking point. As a result, many lenders are making dramatic changes, and some have shut their doors.
At Chase, however, the company is poised to enjoy a bright future, confident in the company’s strong track record as a responsible lender. Chase, for example, chose not to offer Option ARMs (adjustable-rate mortgages)—which could cause borrowers to owe more on their mortgage down the road than they did the day they took it out—emerging with a strong reputation, loyal clients, and a growing list of programs and products designed to get…and keep…people in homes.
“With the media spotlight on everything that’s happening in real estate in general, people want to deal with responsible lenders,” says Pablo Sanchez, managing director of Retail Lending at Chase. “Unfortunately, the industry hasn’t made it easy for folks to understand all the different mortgage variables, so that makes it even more important to be someone customers can count on.”
Helping Customers When the Market Slows
According to Sanchez, this is a role Chase has played for many years. “This is not a new endeavor for us,” he emphasizes. “We’ve shown on many different levels that we are a responsible lender by staying away from the more exotic types of loans. We didn’t go down that path—we didn’t want to put folks at risk of negative amortization.”
According to Thasunda Duckett, SVP of Emerging Markets at Chase, some consumers gravitated toward mortgages that they qualified for initially, but couldn’t necessarily afford down the road. “With home-price appreciation slowing or prices even slipping, people were finding that they didn’t have the equity necessary to get a different loan when the interest rate on their ARMs—and thus their monthly payment—adjusted upward.”
“The tremendous demand for homes fueled home price appreciation, which led some people to take on more and more expensive homes,” explains Timothy Foley, SVP of Product Development at Chase. “Now the challenge is helping people to retain the dream of homeownership.”
“It’s very important that we be responsible and proactive with both our prime and subprime clients,” says Sanchez. “We take this very seriously—it’s part of our core values.”
“Whenever there is a challenge in the market, there is also an opportunity for a company like Chase,” Duckett explains. “Our real estate partners are looking for a lender that will be here tomorrow. A company with Chase’s size, history and brand name gives them that level of comfort.”
Understanding Consumer Segments
An important part of being a responsible lender means understanding the needs of different market segments, providing products that meet those needs, and arming our customers with the information necessary to make good product choices.
Foley believes that listening to each consumer is critical: “Customers have different expectations of how long they plan to stay in a home, how bright their career prospects are, and how secure their employment status is. They might have gotten their first or second job and are expecting to move rapidly through the organization and earn more in a short amount of time. We have to be very open and clear with customers to make sure they understand the options they have. It’s part art and part science.”
Duckett lives and breathes this concept every day because she is responsible for developing growth strategies around the business opportunities that exist in the Asian, Hispanic, African-American, first-time home buyer, and gay and lesbian communities. She must ensure that Chase is serving these growing home-buying communities appropriately.
“This is an evolving division,” explains Duckett. “We’re focused on it not only because it’s the right thing to do, but because it’s a great business opportunity. We want to make sure we have the products, programs and infrastructure in place to make mortgages accessible against all areas of the population.”
Matching up the right financing programs with consumers means fully understanding the needs of each market, Duckett stresses—it’s about “casting a wider net.” For immigrants who come from countries with an unstable banking system, for example, lenders need to take a less traditional approach to assessing credit. “When they come here, they might not have a bank account,” Duckett explains.
Duckett adds, “We also have to look at creating a product that matches the dynamics of a single-head-of-household situation, which is a growing American phenomenon. Also, how do we look at the needs of partners who may not be married but going in on a home together? When you’re looking at customer segmentation, you have to look at the needs of those markets and communities and create products and programs that allow them to be successful.”
Involved at Every Stage
Chase is committed to not only getting consumers into homes, but helping them to sustain that homeownership as well. Chase has always worked one-on-one directly with customers—and will always do that. In 2004, it established the Home Ownership Preservation Office to help customers in times of financial stress, according to Duckett.
Chase recognizes that during the life of a mortgage, a consumer may run into financial trouble that could threaten homeownership.
The Office works with community leaders, housing advocates, public officials and investors to develop policies, practices and solutions to help sustain homeownership.
“The Homeownership Preservation Office is arming nonprofits with information on how we work with customers,” says Duckett. “In 2006 we presented over 240 educational seminars and 45 foreclosure prevention training sessions.”
According to Duckett, Chase is also taking a proactive position with customers who have ARM loans. “We look at borrowers to see if they may be at risk of not being able to make the payments when the interest rate on their ARM resets to a higher rate. We make sure consumers are aware of that rate change. We may find out they have had a life event that has affected their income or other expenses.”
“At Chase we have taken the long-term view of the market,” says Foley. “We develop products that we expect to be viable and really helpful to consumers.”
The Chase SecureFlex program is a good example, says Foley. Providing customers with an alternative to Option ARMs—which carry the risk that a home loan balance will grow over time—Chase SecureFlex allows borrowers to lock in an interest rate for three full years. With principal payments optional for a specified amount of time, a family’s monthly payment can remain relatively low. Even when the rate starts adjusting annually for the next seven years, the new monthly payments will always cover the interest due, so unpaid interest does not build up and reduce the customers’ equity in the house.
Spreading the Word
While Chase has over 200 products designed to meet the individual needs of consumers, a big part of responsible lending involves educating consumers. One example is Chase’s “Legacy Tour.”
Designed to educate the African-American community on establishing and maintaining a legacy through homeownership, the Legacy Tour is presenting seminars in four major cities—Atlanta, Houston, Chicago and New York—with Lynette Khalfani, a best-selling author and financial expert. The tour will also include informational workshops, one-on-one consultations with mortgage experts, onsite loan pre-approvals and displays of a wide array of local housing properties.
It’s all part and parcel of informing consumers, says Duckett. “It’s not just about creating a special product for these markets—it’s about educating and building strong connections with the people, including potential home buyers, Realtors and builders, and then making loans available.”
Getting Partners on the Same Page
Chase realizes that having an array of responsible lending products, backed up by strong educational programs such as the Legacy Tour, is still only half the battle. Chase also must ensure that all of its partners in the lending process—brokers, Realtors and builders—are carrying the same flag.
“We arm our loan officers with detailed information on our product offerings,” says Duckett. “We are educating our real estate partners through summits held locally in different markets where we go over our programs and products. We also work closely with real estate state and local associations.”
“We are striving day in and day out to do the right thing for customers. Our real estate partners are key to making this all work,” says Duckett. “At the end of the day, you don’t want your name behind a foreclosure. We are arming Realtors with the tools and resources to provide great service. No one wants to put a consumer in a home they cannot sustain and feel good about.” RE
For more information, visit www.Chase.com.
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