“Jumbo” mortgage market

Penny Hill, Chase Mortgage’s star local home lending division executive, thinks there is a lot of confusion about the “jumbo” mortgage market of late. Hill says the jumbo mortgage market is still alive and well. It is just smaller than it used to be. A “jumbo” is defined by the industry as a mortgage amount of more than $417,000. “Super jumbo” mortgages are commonly defined as mortgages of more than $1.5 million.

Any mortgage below the magical number of $417,000 — and fitting certain criteria — is considered “conforming” by Fannie Mae and Freddie Mac, the key government-sponsored enterprises created to sell pools of mortgages to investors. When investors buy mortgages, they replenish money available for lenders to make more mortgages.

“Today, a number of lenders are still offering jumbos to their customers, though not as many lenders are offering the loans and not as many buyers are qualifying,” Hill said. “Both of those things make for a smaller market.” Facing flat and declining home values, higher interest rates and more consumers behind on their mortgages, lenders have tightened their credit standards on all loans, including jumbos. The secondary market also is more difficult now.

Fannie Mae and Freddie Mac are not allowed to buy jumbo loans. So lenders are looking to sell the loans directly to investors. With concerns about higher delinquency rates, fewer investors want to buy the loans, so there is less “liquidity.” That is not stopping some lenders from making mortgage loans for customers who want to buy higher priced real estate. Some are holding the loans in their own portfolio, at least until investors become more comfortable.

Chase and other well-capitalized lenders remain steadfastly committed to the mortgage market. Chase is able to originate a wide range of mortgages because it has the flexibility to fund the loans directly rather than relying solely on the secondary market. The company is supported by the financial strength, capital and liquidity of JPMorgan Chase, with $1.5 trillion in assets and $119 billion in stockholder equity.

Chase accepts applications for jumbos of up to $5 million and has innovated over time with lot loans and construction loans that appeal to the jumbo buyer. “Chase’s liquidity allows us to continue to be able to offer a variety of mortgages including first time home buyer, luxury jumbo mortgages and investor mortgages,” Hill said. During the second quarter, Chase originated $44 billion of mortgages, up 41 percent from the same three-month period in 2006.

The company originated $13.5 billion in prime jumbo mortgages during the first quarter of 2007, up from $10.87 billion during the same period last year. But like other lenders, Chase has tightened its credit standards, so consumers looking for a jumbo loan need to have good credit. Chase recently teamed up with mortgage insurance companies to offer a discount on private mortgage insurance to consumers who complete a home buyer education class before they get their mortgage.

Many home buyers, especially first-timers in high-cost markets, are making down payments of less than 20 percent of the home’s value, so their lenders are requiring that they purchase mortgage insurance. Hill, an Old Lyme, Conn., native with a doctorate from The John Bastyr College of Naturopathic Medicine in Seattle, thinks that after all the recent mortgage turmoil, lenders will be more prudent and consumers will become more educated.

Jumbo mortgages mean high risk and high reward for lenders, but given the generally high credit scores and down payments required to access a Jumbo or super jumbo mortgages some banks are now pushing the product. Because of the subprime meltdown, some banks, including Chase, see the jumbo mortgage as fertile ground to keep the lending pumps primed. Hill’s Penny Hill Group does a lot of business. Last year — for the fifth straight year — Hill was named the No.1 loan officer for Chase in the United States. The company has 2,100 loan officers in 300 offices nationwide. Penny Hill Group has processed more than $3 billion worth of mortgages since the group began in 1989. Jumbo mortgages generally have a slightly higher interest rate than smaller loans — often called “conventional” or “conforming” mortgages. Someone taking out a $435,000, 30-year jumbo at the current average would pay $2,917.48 per month for the life of the loan.

Bankrate.com reports that rates on 30-year jumbo mortgages in the U.S. rose 2 basis points to 7.08 percent within the last two weeks. A basis point is one-hundredth of a percent. Nationally, the highest rate that Bankrate found on a 30-year jumbo mortgage was 9 percent. The lowest rate was 5.875 percent.