Bank of America has cut interest rates on jumbo mortgage loans in the hopes of expanding its share of what the bank sees as an underserved market for loans too big for purchase or guarantee by Fannie Mae and Freddie Mac.
Not everybody will qualify for the 30-year, fixed-rate loans of up to $3 million that Bank of America has been offering at reduced rates since January, with interest rates currently in the high 5 percent range.
In order to qualify, borrowers will need strong credit (a 720 FICO score or above), down payments of 20 percent or more, documented income, full appraisals, and assets sufficient to cover six months of payments, said Bank of America product management executive Vijay Lala.
But Bank of America thinks its fixed-rate jumbo loans will prove to be attractive to qualifying borrowers, because many competitors will be hard-pressed to match its rates.
Jumbo loans have become more expensive and harder to come by since September 2007, when rising delinquencies gave investors who fund most home loans through the purchases of mortgage-backed securities cold feet about "private label" securities that don’t carry the backing of Fannie and Freddie.
Unlike some lenders who must securitize and sell the loans they originate, Lala said Bank of America has plenty of room on its balance sheet to fund jumbo loans and hold them for investment, and is "putting the pedal down on our pricing and going after this market."
Lala said Bank of America and Countrywide Financial Corp., which it acquired last year, funded $16.12 billion in jumbo loans in 2008. Although jumbo loan funding dropped to just $2.4 billion in the fourth quarter, Bank of America is already seeing "very nice volume" since introducing its more aggressive pricing.
Bank of America will only offer the loans directly to consumers — and not through independent mortgage brokers — through retail bank branches and Countrywide Home Loans (which will be re-branded Bank of America Home Loans on April 22). Lala said he expects many borrowers will be existing Bank of America customers. …CONTINUED