Did you know…Jumbo originations was the only segment to grow market share last year? We saw Jumbos go from 10.6% share in 2012 to 14.4% in 2013.

Many of the big banks I’ve talked with will only offer QM-Jumbo loans…most don’t want the headline risk associated with the unknowns surrounding non-QM lending. Still many of the Wall Street Investment Banker participants are doing QM Jumbos and are well priced. Pricing for Jumbos can actually be more attractive than conforming rates.

Most of these will allow the medium-sized mortgage bankers to participate. Currently, the selling exit strategy for these conduits/issuers is the whole loan market (which still is robust for these players). If it wasn’t for a strong whole loan market, pricing in this sector of the Jumbo market would make it very unattractive and would ultimately force Jumbos toward the portfolio ARM lenders.

However, the non-QM space, it is starting to evolve. Some banks offer IO’s which by definition is a non-QM loan and there is a few private equity money or portfolio money on the sidelines for a conforming loan amount play regarding non-QM.

There are some private equity firms making a yield play in the non-prime (subprime) part of the business. The rates on those mortgages range from 8%-12% and typically are at LTVs below 75%. Some investors include banks offering warehouse lines and niche portfolio programs such as bank statements with residual income requirement at 60% LTV – 75% LTVs. The interest rates vary from 6% to 7% on the 5/1 ARM.

There still is a huge pent-up demand for an above 80% LTV market for Jumbos, which is coming around more slowly than originally reported. MGIC has had several conversations with those banks and credit unions willing to add these to their portfolios and look to MGIC MI to manage the risk associated with these loans.

As this market evolves, I fully expect more competition to bring pricing down (more than where it is today) for these “innovators”. I’m already speaking with a few investors who are gearing up for non-QM Jumbos, so the second half of 2014 should prove very interesting in this space.

How do you think the jumbo market will evolve? Share with us!

Lloyd San

Lloyd San - Retired MGIC Mortgage Market Manager

A 30-year mortgage industry veteran, retired in 2021, Lloyd San served as Mortgage Market Manager for Mortgage Guaranty Insurance Corporation (MGIC). Overseeing a national effort, he was responsible for managing all client-related capital market activities in the areas of bulk and correspondent loan referrals, investor introductions, structured products, whole loan sales, as well as product and personnel introductions.

In addition, he is chairman of the California Mortgage Bankers Association, Secondary Marketing Executive Committee and also serves on the Western Secondary Conference Committee.

A graduate of San Diego State University in California, Lloyd received his MBA in Financial Management from National University. He also holds a California Real Estate Broker’s License.

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