Jumbo Loans Should Be Key to Purchase Mortgage Business
A lot of major banks are staying in the jumbo mortgage business because a significant percentage of those affluent borrowers are buying homes.
The qualified mortgage rule makes those high-balance loans more risky particularly for interest-only jumbos and jumbos with debt-to-income ratios above 43%.
But homebuilders are finding plenty of lenders that will serve their customers.
Luxury homebuilder Toll Brothers has its own mortgage shop that continues to originate IO jumbos. And TBI Mortgage has no trouble finding buyers for those non-QM mortgages.
“We have two major banks that have committed to funding credit-worthy non-QM loans,” according to Donald Salmon, president and chief executive of TBI Mortgage.
U.S. Bancorp does most of its jumbo mortgage lending through its private wealth management unit and some through its bank branches in California.
During a conference call last week, U.S. Bancorp chairman, president and chief executive Richard Davis stressed that the QM rule has not had much of an effect on his bank.
The Minneapolis-based bank still originates interest-only jumbos and jumbos with DTIs higher than 43% for its portfolio. One executive noted that they mitigated the risk on jumbos via higher downpayments. “We believe we have offsets built into the underwriting,” he said.
U.S. Bancorp has over 3,000 offices in 25 states and it originated $8.6 billion in residential loans in the fourth quarter, down 44% from the prior quarter.
Like most lenders, U.S. Bancorp wants to increase its purchase mortgage volume. Most new homebuyers are fairly affluent.
One midsize bank that has been building its purchase mortgage business for the past two years initially shied away from making non-QM jumbos.
Webster Financial Corp. has enhanced its loan products, including first-time buyer and construction loans, and nearly tripled the number of loan officers to 80 to capture a large share of the purchase market.
“With the additional loan officers, we needed to expand our loan programs to provide a one-stop shop at Webster,” according to Webster senior vice president Simon Tahan.
The Waterbury, Conn.-based banking company originated $564 million in 1-4 family purchase mortgage loans in 2013, up 31% from 2012. Purchase mortgage originations comprised 71% of loan production in the fourth quarter.
But Webster is becoming more comfortable with the idea of making interest- only loans again and it doesn't want to lose jumbo customers. “We are looking at re-introducing non-QM and IOs again,” Tahan said.
Based on an analysis of last year's mortgage applicants, only 5% to 7% of Webster's customer's had debt-to-income ratios above 43%.
Due to the additional income and asset verification required under the QM rule, “we can reduce that 5% to 7% significantly,” says the SVP for consumer lending. “Once we get into the non-QM arena, that will recover the remaining small portion of customers,” Tahan said.
Webster Financial has 168 banking centers in four New England states stretching from Westchester County, N.Y., to Boston.