Bruised But Not Broken: The State of Today’s Mortgage Market
Over the past week, news leaked out that Wells Fargo was putting tighter restrictions on its jumbo mortgage offerings. Although no official statement was put forth, the San Francisco-headquartered lender affirmed reports from the Wall Street Journal and Reuters that it would stop purchasing jumbo loans made by third-party mortgage bankers and would only refinance jumbo mortgages for customers with at least $250,000 in liquid assets in the bank.
Wells Fargo is the jumbo mortgage sector’s largest player, with $70 billion in volume last year. Of course, Wells Fargo is in a distinctive situation not shared by the other large banks – its balance sheet has been restricted to a $1.95 trillion cap since 2018 by the Federal Reserve as a result of its 2016 retail banking scandal. But its decision to pull back significantly from the space raised doubts on the product’s viability during the coronavirus-induced economic mayhem.
However, it appears the jumbo mortgage market still has a degree of resiliency. While no one denies the sector is facing difficulties, the product is still available from lenders that continue to appreciate its value.
Jumbo mortgages fall outside conforming loan restrictions because their high dollar figures exceed the maximum amount backed by Fannie Mae or Freddie Mac. Unlike conforming loans, jumbo mortgages are not securitized into the secondary market by the government-sponsored enterprises. Ginnie Mae securitizes these loans through its pass-through Ginnie Mae II mortgage-backed security, which is collateralized by multiple-issuer pools using loans from government programs including FHA and VA.
It should be noted that the new challenges facing this sector are not rooted in the underlying quality of the mortgages.
Posted on housingwire.com on 4/10/2020.