Soon enough, jumbo mortgages will be as hard to get as Charmin and Purell.
Just a few weeks ago, the entire private label jumbo mortgage channel stopped.
Jumbos are mortgages greater than the “conforming” amount that can be sold to mortgage giants Fannie Mae and Freddie Mac, or loans totaling over $765,600 in Los Angeles and Orange counties and over $510,400 in Riverside and San Bernardino counties.
Private label jumbos are those typically funded by non-bank lenders.
Non-bank lenders fund 20% of the jumbo market while depositories (banks and credit unions) fund the other 80%, according to Guy Cecala, CEO and publisher of Inside Mortgage Finance. Nationally, jumbo mortgages represented 17% of the $2.3 trillion originated in 2019.
So what? We still have depository banks funding jumbos.
Not so much.
While Citibank and Chase continue to buy jumbos from other lenders, Wells Fargo Bank temporarily suspended the purchase of jumbo loans from other lenders last week. The nation’s largest mortgage servicer also is limiting jumbo refinance applications to existing customers who already have deposits or other asset accounts valued at $250,000 or more.
Bank of America stopped purchasing jumbo loans from other lenders in 2011. B of A and Chase still are providing jumbos to their clients, however.
Last year, Southern California borrowers took out more than 56,000 jumbos totaling more than $66 billion, according to Attom Data Solutions. Statewide, borrowers received more than 146,000 jumbos last year, totaling more than $165 billion.
Black Knight figures show that as of February, 13-14% of this year’s mortgages in Los Angeles and Orange counties are jumbos, as are just under 12% are jumbos statewide.
One lender raised its jumbo rates from the low 4% range without points just a few weeks ago to 8.625% with 3 points. Yes, over the moon!
If you are thinking of getting a jumbo loan, you need to act fast.
All it takes is one fire sale of a comparable home in your neighborhood to result in worse jumbo pricing for you or no jumbo mortgage because you don’t have sufficient equity.
And those lenders still offering jumbo loans may have their fill sooner rather than later. Or, they might get spooked by the next piece of news related to the coronavirus economic calamity and just put their cold, hard cash on ice.
As an alternative, you can get a high-balance Fannie Mae loan (up to $765,600 in L.A./O.C. and $510,400 in the Inland Empire) and do a combination first trust deed and second, sometimes called a piggy-back second.
I’ve found piggy-back seconds to go as high as $500,000. These are not ideal, though, as the seconds are typically adjustable, with higher rates to boot.
Jeff Lazerson - Mortgage Columnist since 2011