I recently received my latest missive from Julian Hebron and Brandon Hoyles over at RPM Mortgage, and I wanted to share some of their observations with you. In October, they noted that the jumbo market was thawing, using as an example a client who was borrowing 80 percent of a $1.44 million home purchase.
With this observation, they made two points: 1) clarification of a subtle but important difference between the idea of tight credit (when you can’t get a loan) and tight guidelines (when you can get a loan, but more effort is required); and 2) provision of an example of extra paperwork and calls, with loan funding ultimately coming down to verifying the source of a check that the borrower had gotten – in the amount of 25 cents.
Up until last summer and fall, Hebron and Hoyles said, the spread between a government-backed loan up to $417,000 and a jumbo loan above that amount could go as high as 0.875 percent. Today, they say, that spread is more like zero percent to 0.25 percent.
“The reason,” they write, “(is that) previously there was no real secondary market liquidity for jumbo lenders. So they had to keep these jumbo loans on their balance sheets.” They add that the jumbo market is now heating up, with tight lending guidelines slashing the number of consumer late payments, strategic defaults and foreclosures. This, they say, gives investors confidence to buy jumbos again, which translates to lower rates for borrowers.
The outlook? In a nutshell, non-agency MBS issuance is expected to amount to $30 billion this year as lenders seek to manage risk on new mortgage origination while diversifying funding sources. Stay tuned.
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