Jumbo Mortgages

Jumbo home-loan originations close to pre-2008 disaster ranges


US house prices aren’t the only thing that skyrocketed during the pandemic.

Large US “jumbo” home mortgage loan issuances that exceed the “compliant limits” set for housing giants Freddie Mac and Fannie Mae could reach $ 550 billion this year, a level not seen since the 2008 financial crisis more was seen, wrote BofA researchers Monday, in a weekly report.

In the first half of the year, jumbo bonds of around 283 billion US dollars were recorded, bringing the annual volume within reach of a post-crisis record. With the increase, “a large proportion” was held in bank portfolios, but an increasing proportion was also securitized or bundled and sold to investors as private mortgage bonds (see chart).

The granting of jumbo home loans is increasing.

BofA Global

Contrasted with the nearly $ 7.8 trillion mortgage-backed securities MBB, the -0.09% market, the riskier and much smaller $ 780 billion private label sector that has been dominated by jumbo lending in recent years , there are no state guarantees.

Jumbo home loans go primarily to borrowers with excellent credit ratings who need funding above the limit set for housing giants Freddie Mac FMCC, -0.01% and Fannie Mae FNMA, -3.36%..
That’s currently about $ 548,000 for single-family homes across much of the United States, but closer to $ 820,000 per home in New York, San Francisco, and other high-cost areas. These values ​​can increase annually.

Multiple public mortgage lenders, including PennyMac PFSI, +1.07%,
In recent weeks, borrowers have announced plans to approve loans of up to $ 625,000, a level expected to meet new federal guidelines for 2022, which is expected to be announced in November.

The race for big loans for expensive homes comes as house prices rose nearly 20% year over year in July during the pandemic, while new records were set in many cities across the country.

Read: Property prices are rising at a record pace for the fourth month in a row, but economists aren’t worried about the property market – yet

Jumbo Pfandbrief issuance has already hit a record $ 38 billion this year after 2008, with $ 45 billion likely by year-end, according to the BofA team, which has an expanded investor base for private mortgage bonds, as well poor credit recorded losses and “strong” origination guidelines.

It’s been roughly 15 years since Wall Street sparked a boom in high-leverage mortgages to risky borrowers and a range of exotic, home-related derivatives that imploded as property prices fell, toppled investment bank Lehman Brothers, and a wave of US and European bank bailouts .

Since then, big banks have been obliged by the supervisory authorities to hold more capital against potential loan defaults, but were temporarily prevented from buying back their own shares even during the pandemic.

Investors are waiting to learn more about loan terms from top executives at JPMorgan Chase & Co. JPM, -2.10%,
Bank of America Corp. BAC, -1.26% and Citigroup Inc. C, -0.93% when they release quarterly earnings this week.

Lending in the US housing market has increased but has remained relatively scarce in the years since millions of US homes have been foreclosed. Qualified borrowers have recently been able to get 30-year fixed home loan interest rates below 3%, a cost-saving balance to the affordability crisis many in search of a starter home face.

Wall Street broadly expects the Federal Reserve to present its plan in November to reduce its $ 120 billion monthly emergency purchases of government bonds and mortgage-backed securities in an effort to take back its monetary generosity as the US economy recovers.

Signs that the US economy may incur higher longer-term borrowing costs can be traced back to the 10-year US Treasury’s TMUBMUSD10Y, which recently rose 1.612% to 1.6%, its highest level, according to Dow Jones Market Data June.