When lenders request secondary market assistance to expand their lending operations, they are usually looking for help identifying competitive jumbo investors for both fixed- and adjustable-rate mortgages. Historically non-bank investors/issuers have had the best-priced jumbo fixed-rate loans, while banks have been more competitive in the hybrid ARM category (which includes 5/1s, 7/1s and 10/1s). However, this is only a general rule of thumb, since many banks now place even jumbo fixed-rate loans in their portfolios. Times have certainly changed!

Regarding the jumbo MBS market, in the third quarter, volume issued fell 17.7% on a sequential basis, per Inside Mortgage Finance (IMF). It was the second quarterly decline for jumbo MBS issuance after production hit $4.60 billion in the first quarter of this year. Five firms combined to issue $2.56 billion in the third quarter. Two of the active jumbo MBS issuers increased their volume, while the two active issuers in the second quarter (Five Oaks and Redwood Trust) did not price any deals in the third quarter. Only seven jumbo MBS deals were priced in the third quarter altogether. This is down from an average of 11 deals per quarter during the first half of 2015. Industry participants suggest that lack of investor demand has made the jumbo MBS market less attractive for issuers. In the fourth quarter, which is less than a week old, there have been announcements that WinWater and Two Harbors Investment plan to issue jumbo MBS deals. However, volatility in mortgage rates could throw a wrench into this activity level as 2015 comes to a close.

Nonetheless, the overall jumbo market is growing. Some recent trade publications reported that the second-quarter share of jumbo originations was almost at its all-time highest (20.9%), continuing the upward trend since 2009 for this segment of business.

Let’s talk briefly about the secondary market for jumbo hybrid ARMs (5/1s, 7/1s and 10/1s). At the start of this quarter, there was a glut of loans for sale in the secondary market. Some of the buyers I have spoken with over the past few weeks are already “filled up,” and feel that there are plenty of loans for sale for investors still looking to buy. This has created a supply/demand issue that will have a direct impact on pricing and program offerings from some of these portfolio lenders in the near term. My guess is that many of these net sellers (e.g., banks) don’t want to sit on yields below 3% for at least five years, and some of the investors don’t want to acquire mortgage assets with yields that low either. As a result, there is great anticipation for mortgage interest rates to rise over the next two years. Stay tuned…

One last tidbit of information: Two national players are thinking of increasing their LTVs to 90% for their jumbo offerings. Hopefully, these formal announcements will be coming soon, but we are hearing that both will require mortgage insurance.

With the growing opportunities in the jumbo market, now is a great time to reach out to your MGIC Account Manager to learn how MGIC can support your jumbo lending efforts. We track jumbo investors and maintain customer profile requirements; so if you are a lender that has a need to expand or better understand the jumbo market, MGIC may be able to assist. We welcome your inquiries.

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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