First Market, Union Bankshares offer 3.99% loans on certain new homes

Two local banks are trying to shake loose the new-home construction market, which has been in a slump for more than two years.

First Market Bank and Union Bankshares Corp. are undercutting prevailing mortgage interest rates by nearly a full percentage point -- but with a caveat. The loans are only on homes that the banks financed for builders.

The banks, which are in the process of merging, are offering rates of 3.99 percent on conventional mortgage loans and 5 percent on jumbo loans of more than $534,000. Both 30-year, fixed-rate loans require 1 percent origination fees.

"We don't have any grand design that the rates will jump-start the economy, but every little bit helps," said D. Anthony Peay, chief financial officer of Bowling Green-based Union Bankshares.

"We're getting a lot of calls from people who don't think they will see this rate again," said Jeanie Bode, senior vice president of construction lending for Richmond-based First Market Bank.

"What we hope is for other banks to offer it as well."

Rates on 30-year mortgages nudged up this week to an average 4.84 percent after matching an all-time low of 4.78 percent a week earlier. Rates for jumbo loans averaged 6.39 percent, according to mortgage finance giant Freddie Mac.

The loans from First Market and Union Bankshares, for people with excellent credit, are on properties owned by builders and developers who do business with the banks.

The offer involves, for First Market alone, about 50 builders and 600 lots or speculative homes in 125 neighborhoods in the Richmond area.

The rates will help builders sell inventory, Bode said. They will help homebuyers through lower monthly mortgage payments. And they will help the new-home market in general, she said.

"It will help everybody."

And it will help the banks move construction loans off the books. Construction loans, in effect, will be converted into mortgage loans.

"I think this will work," said Rich Napier, president of Napier Signature Homes. "I wish the other banks would do this."

Tom Tyler, a senior analyst with Integra Realty Resources-Richmond, a real estate research firm, said the low rates will appeal to a segment of buyers who feel secure about their jobs.

"With more and more job losses, an awesome price at an awesome rate isn't necessarily enough," Tyler said.

The rates are in effect through May 31 but may be extended, Bode said.

"Anything that can help is good for Richmond and our market," said Alicia O'Brien, president of the Richmond Mortgage Bankers Association.

Scott Dearnley, an agent with Joyner Fine Properties, said he is working with three potential new-home buyers who are considering making purchases based on the low rates.

"When you break it into dollars and cents, that is what speaks to people," Dearnley said.

On a $400,000 loan, a homebuyer would spend $200 less a month on a 30-year loan at 3.99 percent than a loan at 4.84 percent, according to Bankrate.com.

Contact Carol Hazard at (804) 775-8023 or .