Opinion

Jumbo IO Loans May Be Tough Fit

WE’RE HEARING the jumbo interest-only home loan popular with high-net-worth borrowers is still being made for now, even though it will not fit within the confines of the new qualified mortgage rule that takes effect next year—and its future remains to be seen.

Tom Wind, executive vice president of lending at jumbo lender EverBank, told us at the Mortgage Bankers Association’s recent National Secondary Market Conference in New York that QM does raise implications for jumbo interest-only loans, but for now the company is making them.

While interest-only home loans proved disastrous as an affordability product for lower-income borrowers and in that market are largely extinct, jumbo interest-only loans made to the affluent pre- and post-downturn persist and still have a presence in the new non-agency jumbo securitization market.

As a Kroll presale report on a recent deal by Sequoia Mortgage Trust (Sequoia Mortgage Trust 2013-7) notes, for example, at least three of the jumbo mortgages in the pool collateralizing that transaction were interest-only loans—and the Sequoia Mortgage Trust deals done by real estate investment trust Redwood are said to be among the highest quality and the most regularly issued in the market.

Even though it has hurt more low- to moderate-income borrowers, some affluent customers still feel comfortable with the jumbo interest-only product because they have the income to support it and use it for tax-break reasons.

A lot of the flexible home loan products extend more broadly to borrowers between 2005 and 2007 originally were used more narrowly in the high-net-worth borrower market and many still argue today that they are still appropriate to use in that market.

Wind indicated it is not clear whether the qualified mortgage rule will end or otherwise affect the Jacksonville, Fla.-based company’s originations of jumbo interest-only loans.

Indeed, Consumer Financial Protection Bureau director Richard Cordray has said good loans can be made outside of the qualified mortgage rule.

But with Wind making a note of the regulatory change, it is clear EverBank—which holds some of its jumbo home loan product in portfolio while selling off other jumbo loans into nonagency securitizations—is weighing the possible regulatory impact the pending qualified mortgage rule.

When asked whether the qualified mortgage rules has affected demand for the jumbo interest-only loans as borrowers anticipate a possible end to their availability, Wind indicated it is possible but not apparent so far.

Bonnie Sinnock is managing editor of National Mortgage News and editor of Origination News. She has been covering the mortgage industry since 1995.

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