What We're Hearing

Residential jumbo lending is beginning to show some signs of life again, according to recently compiled figures by National Mortgage News. Bank of America increased its jumbo fundings by 187% in 3Q but there are some caveats to consider here. There is "normal" jumbo lending above the standard Fannie Mae/Freddie Mac loan limit and then there's the "GSE jumbo limit" which is temporary and will sunset someday but don't hold your breath on that one. Meanwhile, there is not much of a secondary market for jumbos unless, of course, your institution is selling them servicing-released to BoA, Wells, and a few others. These mega banks hold the loans in portfolio and why not? They carry a yield 1% higher than the GSE rate (at least) and the mega banks have a cost of funds that is next to nothing. Can you spell 'profits'? Readers know that there is no jumbo securitization market any more. Will there ever be a "covered bond" market in the U.S. that includes jumbos? We shall see. And one last point. New FASB rules that go into effect January 1 will force banks to consolidate some of their off-balance sheet assets. What does this really mean? Answer: banks will need to hold additional capital against these assets because, well, they are now on the books. More capital and more balance sheet means that some depositories might be less inclined to hold jumbos...