Jumbo Lenders See Signs of Fraud

It's generally assumed in housing finance circles that the U.S. likely will not experience a housing price "bubble," but some jumbo and "superjumbo" lenders are quietly tightening their underwriting guidelines.

One high-end lender, requesting anonymity, said he is starting to see a "high incidence" of fraud on no- documentation and low-documentation jumbos.

This lender said he recently increased his firm's underwriting guidelines, requiring two appraisals, with two reviews, and a close look at recent "comps."

"We are really scrutinizing everything," he said, adding that other lenders are doing so as well, "but they may not be advertising the fact."

One lender that has tightened its jumbo/superjumbo guidelines is Aurora Loan Services of Colorado, he said. However, ALS officials could not be reached for comment about the matter. Aurora is owned, in part, by Lehman Brothers.

Other jumbo and superjumbo lenders contacted by National Mortgage News said they have not made any major underwriting changes, but are being careful nonetheless.

Ginny Ferguson, a loan broker who runs her own shop in California, said she has not seen any radical changes from her wholesale funders, but noted that on superjumbos, "most want a second appraisal."

Superjumbo loans tend to have a mortgage amount of $1 million or more. Some funders use automated underwriting system to assess the loans, others do not.

Recently, Wall Street analysts said jumbo and "alt-A" mortgage-backed securities appear to be more vulnerable to a rise in unemployment than securities backed by subprime mortgages.

Chase Home Finance, Edison, N.J., and Bank of America, Charlotte, N.C., are two of the largest jumbo funders in the U.S. A spokeswoman for BoA said the bank has not made any notable underwriting changes on jumbos lately.

Thomas M. Garvey, executive vice president of Chase Home Finance, said, "Our experience with jumbo loans has been outstanding, with delinquencies below industry averages, and so we feel that our current credit guidelines are appropriate."

Ms. Ferguson added that Chase has some of the toughest underwriting guidelines in the industry.

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