Lenders get the munchies for jumbo loans
Homebuyers and refinancers in pricier areas are finding attractive interest rates and less stringent requirements to qualify for jumbo mortgages, thanks to lenders' growing appetite for large loans.
As the housing market rebounds and more investors turn their eyes to the jumbo mortgage market, lenders are easing their terms and credit score requirements on jumbos. Loan origination and approval rates on these loans also are on the rise.
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"Six months to a year ago, if you weren't at a 720 credit score or a 740, you couldn't get a (jumbo) loan," says Jason Auerbach, divisional manager for First Choice Loan Services in New York. "Now, there are opportunities to get jumbo financing with credit scores as low as 700. And there may be lenders out there that will go below that."
That's not to say jumbo loans have become easy to get. To qualify for a jumbo loan, borrowers must have better credit, more savings and higher down payments than borrowers seeking loans that fall within the conforming loan limits. Jumbo loans are generally loans bigger than $417,000 in most parts of the country, but in high-cost areas, they may start above $625,500.
Jumbo loans generally require at least 20 percent down payment or equity from the borrower, says Mathew Carson, a mortgage broker for First Capital Group Inc. in San Francisco. That's an improvement from much higher down payments that lenders required on jumbo loans after the financial crisis, especially in areas that were hit hard by foreclosures.
There are exceptions to the standard 20 percent down. Wells Fargo, the nation's top jumbo mortgage originator, recently began offering jumbo financing to buyers and refinancers of primary residences with 15 percent down payment or equity. The loan does not require mortgage insurance. Most loans with less than 20 percent down do.
Some of the terms for jumbo loans that are used to buy second homes also have eased, Auerbach says.
"We have seen an expansion in those guidelines as well in the recent months," he says. "Whereas before we could do 70 to 75 (percent) loan-to-value, now we can do 80 (percent) on up to $2 million on second homes."
Higher chances of approval
Only 16 percent of the borrowers who applied for a jumbo mortgage in 2012 were denied a loan, according to the LendingPatterns.com Home Mortgage Disclosure Act database. The denial rate on jumbo mortgage applications has fallen consistently since 2008, when about 3 in 10 jumbo loan applications were denied.
Part of the reason lenders have loosened up and are more eager to do jumbo loans is that they have grown more confident about home prices, especially upper-end homes, says Tom Wind, executive vice president of residential and consumer lending for EverBank.
"Stability in the real estate market is driving people's desire to buy move-up homes, to invest in real estate," Wind says. "And it means lenders are more comfortable lending against it."
Lenders see jumbo loans as an attractive market because jumbo borrowers tend to be "high-quality" customers with sterling credit and often have significant assets.
For borrowers, that means more competitive rates. The average interest rate for a 30-year fixed jumbo mortgage is now comparable to the rate on a conventional loan.
"This is an unusual event that runs counter to the historical industry trend of nonconforming rates being higher than conforming ones," says Brad Blackwell, executive vice president and portfolio business manager for Wells Fargo Home Mortgage.
About a year ago, the fixed rate on jumbo mortgages was more than a half of a percentage point higher than on a conforming loan, according Bankrate's weekly rate survey.
"That gap between the jumbo and the conforming has definitely narrowed," Carson says. "And some lenders are doing some really aggressive pricing."
Wells is one of those lenders, he says. Wells jumbo lending activity for the second quarter of 2013 rose 15 percent from a year previously, Blackwell says.
"Demand for nonconforming loans continues to grow," he says. "In fact, we are at our highest funding levels since 2007."
The nation's largest jumbo lenders by volume of loans, according to LendingPatterns.com HMDA database are:
- Wells Fargo
- JPMorgan Chase
- Bank of America
- Quicken loans