In this morning’s Wall Street Journal, it is reported that New York and the rest of the country, is experiencing the return of the JUMBO MORTGAGE…..Not long ago, many big banks were turning away New Yorkers seeking jumbo mortgages. This summer, however, banks are competing for the business, creating a wealth of new products and attractive options for borrowers.
Jumbos are mortgages that are too big to receive government backing through Fannie Mae, Freddie Mac or the Federal Housing Administration. The size limits for jumbos vary by region, but in the tri-state area they are mortgages that exceed $729,750.
During the mortgage crisis, many big banks eliminated their jumbo lending operations. Others retained the operations, but scaled back the number of loans they originated, partly by raising down-payment requirements—some were as high as 40%—and tightening credit standards so much that many borrowers couldn’t qualify. But that’s changing fast.
“There are many more players in the jumbo market” than last year, when jumbo lending was dominated by smaller regional banks, said Melissa Cohn, president of Manhattan Mortgage Co. In recent months, several large banks, including J.P. Morgan Chase, Citibank and Wells Fargo have expanded their jumbo lending.
And while the push into the jumbo market is occurring nationwide, banks are particularly attracted to the New York area, said Keith Gumbinger of HSH Associates, a publisher of consumer-loan information in Pompton Plains, N.J. “If you’re going to be in the jumbo business, this is one of the best audiences,” said Mr. Gumbinger, noting the large concentration of wealth in the region and the relatively low default rates in the wealthier ZIP Codes.
Gibraltar Private Bank & Trust, based in Coral Gables, Fla., has been particularly competitive, offering jumbo loans as large as $10 million. “It’s a clear differentiator that we are aggressively lending to the affluent in New York,” says Chris Damian, Gibraltar’s chief lending officer. “We’re doubling our lending staff in the New York market by year-end, which is an indication that this market is booming.”
Interest rates on jumbos typically are higher than rates on smaller mortgages, but the gap has narrowed in the past year. Overall, jumbo mortgages offered in the New York area on a 30-year jumbo loan have declined to 5.59% as of last week from an average of 6.35% a year ago and to 5.13% from 5.91% on a 15-year jumbo loan, according to HSH.
But several small local banks are offering jumbos under 5%. For example, on Monday, Valley National Bank was advertising 30-year jumbos at 4.75% and 15-year jumbos at 4.5%, according to the bank’s website.
The cost of adjustable-rate jumbo mortgages is also falling. On Monday, Apple Bank lowered its rate on a five-year adjustable rate mortgage to 4.25% from 4.5%. A few banks, including J.P. Morgan Chase, are offering rates as low as 3.75% for borrowers making a down payment of at least 20%.
Down-payment requirements are easing. Wells Fargo said late last week it will lend $1 million to borrowers with down payments of 15% as long as they have strong credit.
“Big banks are jumping back in to the jumbo mortgage market because the default rate is relatively low on these mortgages historically,” said Richard Martin, a senior vice president at DE Capital Mortgage LLC, an affiliate of Wells Fargo Home Mortgage. Generally speaking, lenders restrict the size of loans so that monthly mortgage payments are no more than 35% of a borrower’s gross income, he said.
Small and regional banks often try to compete with bigger lenders by appealing to different market segments. Gibraltar’s $10 million loan limit is one of the highest in the area.
Astoria Federal Savings & Loan tries to offer lower rates than its competitors while Apple Bank is the most lenient when it comes to loans associated with new condominium developments. U.S. Bancorp, based in Minneapolis, has the lowest down-payment requirement: just 10%.
Many regional banks are more flexible than the big banks and don’t have a minimum credit score that covers all borrowers, preferring to grant jumbo loans on a case-by-case basis. For example, at Hudson City Savings Bank, which services primarily New Jersey, Connecticut and parts of New York, a determining factor is whether jumbo-loan candidates are consistent in paying their existing mortgage.
“We determine a track record by primarily looking at how borrowers repay their [previous] mortgage debt,” says Tom Laird, chief lending officer at Hudson City Savings. “We want to make sure their income level can carry a jumbo mortgage.”
LUXURYlesson: “Again we are reminded of the resiliency of the Manhattan luxury market”, says Leonard Steinberg, head of the LUXURYLOFT team and managing director of Prudential Douglas Elliman. Making Jumbo mortgages more easily available will widen the list of potential buyers who have till now remained on the sidelines. We reported several months ago in LUXURYLETTER how we saw smaller and out of town banks starting to compete with the ridiculously slow and often unexplainable behaviour of larger banks who were turning down super-qualified buyers for no good reason at all. This is an important indicator showing the un-locking of the credit markets. If a real miracle were to happen, Washington may also acknowledge that the cost of living in Manhattan is significantly greater than other parts of the country and adjust our tax code accordingly: No, Messrs. Obama, Pelosi, Reid: $ 250,000.00 per year in Manhattan does not make you rich!”