Jumbo mortgages may be making a comeback, as lenders loosen their purse strings to approve more of the high-value home loans.
Lenders originated $18 billion in jumbo mortgages in the second quarter of the year, a 20 percent increase over the first quarter, according to a report in the Wall Street Journal. Though that's well below pre-crash levels, it's an encouraging sign that lenders are feeling more confident in the stability of the housing market, at least at the higher end.
The report cites data from Inside Mortgage Finance, a private-circulation trade publication, that JP Morgan Chase increased jumbo mortgage lending by nearly 150 percent during the first half of 2010, compared to one year before, while Wells Fargo increased its jumbo mortgage volume by nearly 50 percent during the same period.
The trend is an encouraging sign for mortgage lending in general, because jumbo loans are considerably riskier for lenders to issue, because they are not guaranteed by government-backed agencies such as the FHA, Fannie Mae or Freddie Mac. They are known as jumbos because they exceed such agencies' conforming loan limits, which range from $417,000 generally up to $729,750 in higher priced communities.
Although big banks such as Chase and Wells Fargo have been issuing more jumbo loans, the report says that many jumbo borrowers have been turning to smaller lenders, which have more flexibility in dealing with clients. Some borrowers have found they can get approved at a smaller bank in about half the time as a major one.
Borrowers may also have better luck with smaller banks or mortgage brokers when seeking jumbo loans for condos or vacation properties, according to the report, as major banks tend to be more rigid about approving such loans.
The seemingly big jump in jumbo loans may be due in part to the fact they've declined so far that even a relatively small increase appears big. According to Inside Mortgage Finance, jumbo mortgages have accounted for only 5 percent of all home loans over the past two years, compared to a historical norm of about 18 percent.