Markets & EconomyMortgage

Why jumbo loans haven’t recovered like the rest

Discrimination is only one part of this mystery
  • The jumbo market is growing, but after a near-death experience in 2007, it's barely breathing.
  • It is very expensive to comply with the CFPB’s demands and threats. And direct lending by a bank escapes the cost of securitization, but also brings the hazard that if not securitized, the bank has to keep the loan.

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Last week, the great Wall Street Journal took a whack at describing the market for jumbo mortgages. The Journal is not fond of real estate (much better to leave your money in the stock market), hostile to mortgages (too much government involved), but friendly to banks (they issue stock). So, the jumbo story had the usual odd Journal flavor. The authors discovered that the jumbo market is growing, that banks are central to it, that jumbo rates are almost the same as “conforming,” and found evidence of race discrimination. What's happening to the jumbo market? The jumbo market is growing, but after a near-death experience in 2007, it's barely breathing. Securitization had been the primary source of jumbo money since savings and loans died in the '80s. A jumbo is a jumbo because its a loan too big to put in a Fannie mortgage-backed security, and a sideshow -- in pink of health rarely more than 10 percent of originations, and outstandings an even smaller percent of th...