Several major mortgage lenders have reported a significant increase in the number of jumbo loans they are issuing. According to new data compiled in the trade publication Inside Mortgage Finance, lenders issued more than $38 billion in jumbo loans in the second quarter (June 2012) as compared to $17 billion in the same quarter a year ago. This is quite a change and a return to levels experienced in the early part of 2008, near the beginning of the recession.
Which lenders are issuing the most amount of loans?
Most of the major lenders reported an increase in the number of jumbo mortgages issued. However, there are a few standouts. Wells Fargo more than doubled the number of jumbo loans issued year over year and now owns nearly 35% of the lending market. Those seeking a mortgage should take note of this as Wells Fargo is aggressively looking to increase their jumbo mortgage portfolio, which may be favorable for borrowers. Bank of America and Citigroup also reported increases in their jumbo mortgage portfolio, albeit at more modest levels (i.e. single digit increases). It’s also important to note that jumbo loan origination has increased in step with home sales valued at a million dollars or more. Luxury home sales are up nearly 20% in July as compared to a year ago, according to the National Association of Realtors.
How are jumbo mortgages different?
Most jumbo loans valued at $417,000 or more aren’t eligible to be sold as securities through Fannie Mae and Freddie Mac. They are also not insured by the Federal Housing Administration. Therefore, the borrowing costs are typically higher for jumbo loans than they are for traditional mortgages. Still, with rates at near all-time lows, many borrowers can apply for a 30 year mortgage with an APR at or close to 4%.
Jumbo loans are very profitable for lenders
Although these loans present a risk to the lender, they are also very profitable. Many lenders have stricter guidelines for these loans and require larger down payments and additional months of reserves.
More questions? Browse answers or ask your mortgage questions online.
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