Jumbo Loans are Easier to Get

By Robert Freedman, Senior Editor, REALTOR® Magazine

The jumbo market appears to be thawing, at least according to a couple of recent articles in the trade and general press. But I’d be curious to know what you’re seeing in your markets.

One of the things I learned when I interviewed Vijay Lala of Bank of America Home Loans late last year is that the jumbo market started coming back in 2009, but it was mainly the really big national players like BofA that were making the loans. They were the only lenders with the financial heft to hold the loans in their portfolios comfortably. Smaller lenders, with no Wall Street players willing to securitize jumbo mortgages and unable to hold the loans in their portfolios, couldn’t get into the market.

Well, apparently what’s changing is that we’re beginning to see securities market for the loans coming back. According to an April 24 piece in the Washington Post, Redwood Trust, in a Securities and Exchange Commission filing, said it would sell $222 million in securities backed by pools of jumbo mortgages. The article went on to say that the average balance of the mortgages would be about $933,000, and that the securities, when they’re issued, would the first since the market collapsed.

The mention of Redwood Trust came deep into the article but I wonder if it should have been played up more, because if the company is successful in attracting investors, then lenders other than the big national banks will be able to at least start thinking about making loans, providing competition to the big banks and maybe helping to move the market to a more normal place.

Right now, the average interest rate on jumbo loans for the most credit worthy borrowers is about 6 percent. That’s extremely low by any reasonable standard, down from something closer to 8 percent during the height of the mortgage crisis. But lenders want to see a lot of skin in the game, more than 20 percent of the loan amount, and, at least for the last couple of years, it’s just been hard to get applications approved, even for good borrowers.

For some people—consumers and real estate people alike—the jumbo market isn’t considered that relevant to them. It’s for high-income households buying high-end houses. But in quite a few markets, houses listed at the $729,750 high-cost conforming loan limit and above are, if not mid-market houses, then not too high above the mid-market. So the difficulty borrowers have been having getting these loans hurts quite a bit.