It was the early 2000s, and McMansion mortgages were at their height. Super-sized homes with jumbo-sized mortgages were fairly easy to come by for young, low-wealth, high-earner borrowers. Then came the Great Recession that put the brakes on these deals. Banks started being more choosy with their lending and government regulators more careful with their guidelines. But that was eight years ago. A lot has changed — just look at this latest news story.
JPMorgan Chase is just the latest big bank to relax its underwriting rules for big-dollar mortgages. This is, in fact, a great thing for mortgage loan brokers who work with jumbo loan borrowers and there are three keys factors to understanding this development.
1. High-Earners Are Prospering
We’re years past the housing crisis and well into an economic recovery. Sure, there are some people out there who are still struggling, but that’s not the case with high-income and high-net-worth individuals, however. These folks recovered quicker than the average American. That head-start has meant their current financial situation is very secure and their wealth is growing.
It’s these “well-heeled” borrowers, as the Wall Street Journal calls them, that are jumping into the jumbo mortgage market in unprecedented numbers. In fact, jumbo originations are up 58% over last year, reaching an eight-year high of $93 billion in home loan originations, according to the Wall Street Journal.
In fact, jumbo mortgages and refinances now account for one out of every five first-lien mortgages in terms of dollar volume according to a report from Inside Mortgage Finance. Twenty percent. How does this compare? The same statistic was 5.5% in 2009. In fact, 2005 was the last year jumbo mortgages accounted for this much of the market share.
2. Regulations Are Changing
Dodd–Frank and other regulations continue to affect the mortgage market. Conforming mortgage limits were raised in 46 counties in January, to keep up with spiking home prices in hot real estate markets. While the national average cap might be $417,000, some metro markets are currently capped at $625,500 for conforming mortgages, and that still may not be enough to meet market demands.
At the same time, some of the bigger players in the banking industry are stepping away from smaller loans because of high regulatory costs and the risk of litigation. Sales are reflecting this trend. This summer, homes in the $750,000 to $1 million price range rose 21% year over year. Homes in the $100,000 to $250,000 range were up about half as much, and home sales in the less than $100,000 range fell.
3. Banks Are Competing
So how are banks adjusting to this new mortgage market? Currently, they are engaged in some surprisingly stiff competition. Chase is just the latest big name to dive into the deep end. The big news from August is that the company is lowering its credit score requirements and down payment minimum for mortgages as big as $3 million.
Those FICO scores for these high-earning borrowers are being lowered to 680 from a previous requirement of 740. A borrower with JPMorgan Chase can now get a jumbo mortgage with as little as 15% down payment.
But what’s really unheard of is that these requirements are being extended for Chase mortgage loans all the way up to $3 million. In a way, Chase is going all in with this move. Bank of America and PNC Financial had previously lowered their requirements for jumbos — but only up to $1 million and $1.5 million, respectively. Meanwhile, Wells Fargo last year dropped its minimum down payment to only 10.1% for mortgages up to $1 million.
Despite this race downwards for banks, the market for jumbo mortgages is quite healthy, according to the Wall Street Journal. In fact, approved borrowers in May had an average FICO score of 770 and made a 32% down payment.
Jumbo Mortgage Sales Are Back
What this all means for you, the mortgage broker, is that now is a great time for business. Customers in this price range are well-qualified buyers. These folks have the capital and the finances to buy the high-priced home they want.
On the other end of things, the major U.S. banking lenders are all looking to aggressively increase their market share of jumbo loans and beat out the competition. This puts those folks originating the deals who are in the middle in a really fortunate place.
Brokers who focus on these non-conforming loan borrowers could do well over the next couple years. And for those brokers looking for even more leads of qualified borrowers, consider the Aged Lead Store. The Aged Lead Store has thousands of new easily searchable and filterable leads for refinance and new home purchase. Just what you need to take advantage of this booming jumbo mortgage loan market.