Lenders Are Courting Wealthy Borrowers

from Bloomberg Business . . .

Applications for mortgages from $1 million to $5 million to buy homes rose 16 percent in January from a year earlier, MBA data show. In January 2014, requests for home loans from $625,000 to $1 million comprised the fastest growing parts of the jumbo market.

Sales of homes worth $1 million and more will easily expand more than 10 percent this year, Yun said. High-end purchases have gained market share, with homes worth at least $1 million making up 2.2 percent of total sales in December compared with an average of 1.7 percent since January 2008, NAR said.

Jumbo mortgages, or those of more than $417,000 in most areas, exceed the limit for government-controlled Fannie Mae and Freddie Mac to guarantee. The loans are made to the most creditworthy borrowers and are generally held by banks instead of being packaged into securities and sold to investors. These borrowers usually have credit scores of at least 750, said Guy Cecala, publisher of industry newsletter Inside Mortgage Finance.

“What jumbo lending does for us is attract really high quality customers with high quality assets we can put on our balance sheet,” Wells Fargo’s Blackwell said.

Wells Fargo is the biggest jumbo lender, originating $42.3 billion in these mortgages last year, or 18 percent of the market, according to Inside Mortgage Finance. PHH Mortgage Corp. is No. 2 with $23.1 billion in volume, followed by JPMorgan Chase & Co. with $22.9 billion.

Mortgages of more than $1 million make up about 20 percent of Wells Fargo’s jumbo business, which is concentrated in the San Francisco Bay Area, New York City metro area and Los Angeles, Blackwell said.


Lenders are courting wealthy borrowers by offering lower down payments and accepting assets in their bank accounts as collateral. Since banks keep the loans, they don’t pay guarantee fees to Fannie Mae and Freddie Mac and can offer low interest rates, said Joel Kan, director of economic forecasting at the MBA.

A Wells Fargo borrower who wants a mortgage of at least $1 million and puts 20 percent down may get a rate of about 3.88 percent, Blackwell said. The average rate for a 30-year fixed mortgage was 3.76 percent, Freddie Mac said in a statement last week.

Erin Lantz, vice president of mortgages at Zillow Inc., said banks pursue these borrowers in hopes of selling other products to them as well. The share of requests on Zillow Mortgages for loans from $1 million to $2 million increased to 13 percent in February from 10 percent a year earlier, the biggest increase among all jumbo segments, according to data from the Seattle-based firm.

“In the post-mortgage meltdown, larger banks are reevaluating the segments they want to get more aggressive on and the jumbo consumer is attractive not just as a mortgage client, but as a wealth management client,” Lantz said.



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