From Steep Premium to Discount
In the wake of the 2008 Financial Crash, rates on jumbo mortgages (over $417k in most parts of the country) skyrocketed to 7% or even higher.
Fast forward to Fall 2015, when jumbo’s can now be had for as little as 3.75% — a slight discount to their smaller, “conforming” brethren.
Loss Leader
What changed?
Supply and demand, for one thing: lenders all but stopped underwriting jumbo’s 6-7 years ago (which just begs the question, “why?”).
Now, according to ace Edina Mortgage loan officer Steve Mohabir, at least some lenders view jumbo’s as a loss leader, and are willing to cut their margins to get a crack at upper bracket clients’ other business.
Jumbo Loan, Jumbo Risk(s)? Not Really
Has anything else fundamentally changed about underwriting jumbo’s?
Not that I’m aware.
Historically, lenders have always required heavier down payments on jumbo’s (20% to 30%), arguably making them one of the safer loan products.
And while it’s true that upper bracket homes typically take longer to sell — adding to a lender’s holding costs in the event they have to foreclose — that’s mitigated by the conservative loan-to-value ratio, as well as jumbo borrowers’ typically stronger balance sheets.
See also, “Jumbo Loans Switch From Big Premium to Big Discount.”