TMS Funding, Milford, Conn., was launching a jumbo wholesale product at press time as higher loan amounts in general were picking up some momentum, but still appeared likely to leave a small number of relatively high-cost areas with some funding gaps due to plans for an FHA loan limit decrease this fall.
Total Mortgage Services president John Walsh also said in an interview that his company's wholesale unit was continuing to explore the possibility of becoming a correspondent lender.
Walsh said the company's jumbo wholesale product is “competitively priced” and in hybrid loan form. It also has what he said are slightly higher loan-to-value ratios than some other jumbos on the market and is available in the majority of the 23 states the company is licensed in.
The product at press time was available as a 5/1, 7/1 and 10/1 loan. It went up to $2 million and had a debt-to-income ratio of 45%. Its loan-to-value ratio was 90% for amounts up to $625,000, and 80% for amounts up to $1 million.
Second-home loans were available at an 80% LTV for amounts up to $650,000, and at an LTV of 75% for loan amounts up to $1 million.
He said he believes the jumbo space in general is picking up more momentum and there has been a greater variety of funding available from others in the “lower FICO, lower LTV” area, which he notes is “not our type of client or what we are going to do.”
But it is, he said, “a positive” sign that the tight lending market is opening up a bit to meet some underserved demand from borrowers with an ability and willingness to repay.
There are many potential borrowers in the market who are “ready, willing and able” but find that there is “just not a mortgage product that fits them,” Walsh said.
Walsh said the Fed's statement last month indicating short-term rates are slated to remain low through 2013 “may spur some banks to go after some higher-yielding product” and add to interest in the jumbo market. He said this could be an “unintended benefit” that could result from the Fed's action.
He said this could help fill the void between FHA and Fannie Mae/Freddie Mac product likely to emerge in some areas as these entities lower their loan limits in October.
“I think there will be somebody in the jumbo space to pick up the slack,” Walsh said.
While against the backdrop of the country as a whole, the number of areas affected by lower loan limits may look relatively small, some areas will see declines from amounts over $400,000 to $270,000. For potential borrowers in such areas who would otherwise tap the FHA program to get relatively higher balance loans with downpayments as low as 3.5% “that is going to hurt.”
“I don't think anyone is going to come in with that 3.5% down product,” Walsh said. “Maybe it is because it is a more risky product and the market is not ready for it.”
The market does have room to loosen its loan criteria somewhat within reason, but “not a return to subprime.”
“Credit quality has gotten significantly better” than four years ago, he said, noting that fraud prevention tools, more scrutiny in terms of appraisals and better underwriting in general has contributed to this.
Meanwhile, in preparation for a return of the traditional jumbo market, mortgage insurer Radian Guaranty revised its guidelines to provide MI on loans up to $650,000 with LTVs between 85.01% and 90%; and up to $750,000 for loans with LTVs of 80.01% to 85%.
