Tom Wind, the executive VP of residential and consumer lending at EverBank and an industry veteran whose mortgage banking experience goes back over 20 years, believes the jumbo loan market is in growth mode.
Overall housing market improvements and loan limit changes have opened the door to more growth, he said. “The jumbo business out there is starting to rebuild.”
Loan limit adjustments adopted by the GSEs are contributing to future growth.
“Agency loan limits will continue to decrease,” he said. As a result, more of the volume will move from the agency side of the market to the nonagency side. “The aggregate nonagency market should be growing as the agency presence shrinks over time.”
Other pending solutions to issues such as what a qualified residential mortgage consists of also will impact the jumbo market once the regulators’ decisions are finalized.
Wind agrees that the jumbo loan market performance in the past few years has been like a rollercoaster ride. Some analysts expected to see a big wave of delinquencies in this segment of the housing market, but it did not materialize, he believes.
“We are continuously monitoring the market from the whole loan value standpoint so we can adjust our guidelines to market changes,” he said. And the most welcomed change so far has been the stabilization of real estate prices and an increase in home values that has helped increase loan-to-values in certain areas.
“The performance of loans in our jumbo loan portfolio has been very strong,” he said.
EverBank operates as a consumer-direct, wholesale and correspondent lender that specializes in nonagency jumbo loans. The company is seeing demand grow in well-performing areas such as the coast of California, Northern Virginia, parts of Texas and in the Northeast. “The demand for the product is there and the performance has been very good.”
Most jumbo loan holders, however, are not adventurous with their credit. The average loan-type ratio is 70% fixed-rate and 30% adjustable-rate mortgages.
Low interest rates and lower prices provide “a real attraction for jumbo loans,” he said. At the same time, because of the overall low interest rate environment, borrowers prefer longer-term, fixed-rate loans.
The fixed rate versus adjustable rate ratio is driven by affordability and convenience, he said, but it does not mean the loan product menu is not diverse.
“The whole dynamic has changed around acceptable underwriting processes. In the jumbo world it is a little more difficult than in the general agency product world. You are dealing with more affluent borrowers who have more complicated and more complex income streams and investors.”
Nonagency jumbo loan transactions “are not so easy to put into a square box, you have to have a little more flexibility,” he said. One of the advantages of being a portfolio lender like EverBank is that the company specializes in these types of transactions.
Jumbo loan holders mostly are small business owners, self-employed individuals, or wealthy individuals with multiple properties and investors with very complex tax returns. “It takes a more intensive underwriting” compared to an agency loan.
Location always matters. The strongest jumbo loan demand comes from the submarkets that follow the traditionally very sought-after areas along the East and West Coasts as they have high employment rates.
EverBank headquarters are in Florida, which is moving beyond the drastic fluctuations in home values experienced during the height of the crisis. Today there is new investment opportunity, according to the EverBank executive.
“Florida has been at ground zero, but it is holding up and now it is coming back quite strongly,” he said. As a result Miami and now portions of Fort Lauderdale again are attracting wealthier borrowers and doing pretty well.”
In his view, hot spots where jumbo lending appears to be making a comeback are Northern Virginia, which stayed “relatively strong throughout the whole cycle,” and some parts of Southern California and Florida coastal areas that were under a fair amount of pressure during the crisis. Also, the Phoenix market seems to have hit bottom and has seen new demand as well.
A housing market return to more conservative lending and loan origination practices makes jumbo loan risk appear to be low and manageable. Loan quality overall is very high, he said, so the quality of the borrowers and the equity on the even the higher-balance properties and loans is very strong. “We focus on getting high quality loans so we do not have issues to deal with.”
EverBank is one example of a company whose strategy has been consistently conservative in maintaining strict underwriting criteria and an experienced underwriting team, he said.
