The availability of jumbo loans across the country dropped 1.4 percent in April, but lenders are still competing hard to make jumbo loans in the Bay State.
Conventional mortgage availability increased slightly in April, but overall mortgage credit availability decreased due largely to the decreased availability of jumbo loans, according to the Mortgage Bankers Association’s (MBA) Mortgage Credit Availability Index (MCAI).
By that index, the market had a score of 100 in 2012. At the height of the boom in June 2006, the MCAI scored an 859. The MCAI decreased 0.89 percent to 122.4 in April 2016 from the previous month. According to the MCAI, mortgage credit has become gradually more available since 2012.
“Mortgage credit became less available in April as a result of two opposing trends, resulting in a net decrease to the index,” Lynn Fisher, MBA’s vice president of research and economics said in a statement. “Investors continued to roll out Fannie Mae and Freddie Mac’s low down payment loan programs, which had a loosening effect on credit availability. However, this was more than offset by tightening among high balance and jumbo loan programs.”
In a telephone interview, Fisher said the key to interpreting the index is understanding that it tracks the supply of the loans, not the demand.
“We’re tracking both the number of programs, as well as the relative riskiness of those programs,” Fisher said. “The index is a combination of how many offerings there are and there were simply fewer offerings nationwide.”
Larger Lenders Compete For Jumbos
According to Inside Mortgage Finance, a mortgage industry newsletter, “One of the biggest factors limiting the issuance of jumbo mortgage-backed securities is the strong appetite banks have to hold jumbos in portfolio.”
Larger lenders have more assets and can afford to hang on to jumbo mortgages, which is more profitable than securitizing them. Because lenders aren’t selling the loan, they’re also able to ease the loan requirements without having to be concerned about making potential buyers nervous.
Still, demand is steady and competition is heating up in the Bay State jumbo market. In August 2015, J.P. Morgan Chase announced it was streamlining its jumbo loan requirements. The mortgage giant lowered their minimum FICO score from 740 to 680 and lowered the 20 percent minimum down payment to 15 percent for jumbo mortgages on homes up to $3 million.
“We want to make sure homebuyers can easily understand the benefits of financing with Chase,” Steve Hemperly, J. P. Morgan Chase’s head of mortgage loan originations, said in a statement.
Wells Fargo, another heavy-hitter, had loosened their jumbo requirements about a year before that announcement, and loosened them even more after it.
Rolando Lora, Wells Fargo’s area sales manager for Massachusetts and Rhode Island, said his company is responding to increased demand for jumbo loans without compromising underwriting standards.
“We’ve introduced lower down payment options to help buyers in more expensive markets,” he said. “We underwrite with a focus on the customer’s ability to pay. In addition, we have a unique and experienced underwriting team dedicated to the jumbo business, which allows us to do more. We’re expanding sustainable homeownership.”
Lenders are quick to point out that this is not a return to the “bad old days” when some lenders made high-risk loans, such as giving a mortgage to a borrower who couldn’t verify their income, for example. They say ensuring the borrower’s ability to repay the loan remains a high priority.
Jumbo loans are generally seen as less risky for lenders because they typically require higher FICO scores of borrowers than conforming loans do. They’re also less profitable than conforming loans for lenders, especially as competition in the marketplace has increased over the last few years.
Local Banks Want Jumbos Too
Charlie Nilsen, national director of residential lending at Boston Private says this is one of the most competitive jumbo markets he’s seen in a long time, maybe ever.
“We’re seeing a lot of demand for jumbo loans,” Nilsen said. “We’re seeing competitors’ guidelines become less strict. We also see the big banks getting very rate aggressive, especially in the last six to nine months.”
Nilsen said because Boston Private keeps most of their loans and doesn’t sell them on the secondary market, they can be a little more flexible in the underwriting process.
“We tend to be very holistic in our approach,” Nilsen said. “We will entertain lower FICO scores than we used to and our down payment requirements have eased a bit. Things have normalized to where we’re seeing a 20 percent down payment is more the norm.”
Nilsen said Boston Private has been doing some refinance work since the fixed rate portion on a lot of five-, seven- and 10-year ARMs are coming up, but most of the jumbo loans he sees are purchases.
“One of our biggest competitors in the Boston market has been cash these days,” he said.
