Jumbo Market Heats Up Among Small Lenders

May 19, 2014

Overall mortgage lending has declined as mortgage rates and home prices began rising recently. But lenders are eyeing jumbo loans as an appealing area of growth, The Wall Street Journal reports.

Sales of single-family homes priced at $1 million and above increased 7.8 percent in March compared to year-ago levels. On the other hand, sales of homes between $100,000 and $250,000 fell 9.8 percent during that time, the National Association of REALTORS® reports.

"Lenders more than ever want the jumbo-mortgage borrower on the books," Greg McBride, chief financial analyst at Bankrate.com, told The Wall Street Journal.

For the first time in more than 35 years, conforming and jumbo loans have held around the same interest rate for six months, says Guy Cecala, CEO and publisher at Inside Mortgage Finance.

Small lenders are stepping in to the competition for the jumbo-loan market.

"Small banks don't have to pay out money on CDs, and whatever money they have to lend is very low-cost money," Cecala says. "Before the crash, they couldn't compete in the conforming mortgage space, let alone the jumbo space, but now Acme Savings' costs are pretty much the same as Wells Fargo’s.”

Though smaller lenders are ramping up their presence in the jumbo market, Wells Fargo continues to dominate. The banking giant issued more than $43 billion in loans in 2013. But PHH Mortgage, a small lender in Mount Laurel, N.J., has become the second largest jumbo lender with $26 billion in loans last year, squeezing ahead of Bank of America last year.

"The high-income individual is not only a candidate for loans but for investment products, small-business services, you name it," says McBride about the courting of jumbo-loan borrowers by banks. "The mortgage business may be the foot in the door."

Source: “For Jumbo Loans, Small Is Big,” The Wall Street Journal (May 15, 2014)

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