Over the last year, the nation’s largest banks, spooked by surging rates and increased regulatory risks, have shied away from the jumbo mortgage market. A select group of regional bank challengers have suffered a worse fate: dead, sometimes directly because of their own calamitous jumbo strategies. And to compound matters, Wells Fargo, the biggest lender in the space, has exited the correspondent channel, which has resulted in pricing nightmares for bankers at hundreds of smaller lenders.
It’s not pretty, and it won’t be getting better any time soon, HousingWire’s Flávia Furlan Nunes reported in our two-part data series examining the volatile — and rapidly shrinking — jumbo space. Economic conditions, however, are opening up space for new entrants eying market share.
HousingWire crunched the numbers to reveal which lenders have pulled back or exited the jumbo market, which markets have been most acutely affected, and which nonbank lenders are jumping headfirst into the jumbo space.
Our analysis of Home Mortgage Disclosure Act (HMDA) data — done by our newest hire, data journalist Will Robinson — focuses on conventional, non-conforming first-lien mortgages used to purchase or refinance single-family dwellings. Nunes also sought input from industry experts, lenders and loan officers.
First, we have to talk about the exits. Robinson found that 3,122 lenders originated at least one jumbo loan in 2022, and that 138 lenders exited the space last year. In fact, more than 900 lenders have exited the jumbo marketplace since 2018. Early indications are plenty more will depart in 2023.
Our HMDA analysis found that jumbo production fell to $377.9 billion in 2022, down 41.3% from $643.4 billion in 2021. Here were the top 10 jumbo lenders in 2022:
In the first quarter of 2023, jumbo production totaled just $37 billion, down 36% quarter over quarter and 72% year over year, according to Inside Mortgage Finance. By contrast, the overall mortgage market declined 61% year over year in Q1 2023.
In California, jumbo volumes reached $117.5 billion in 2022, about 31% of all jumbo originations in the U.S., according to HousingWire’s analysis. Jumbos were also about 40% of all conventional loans originated in California last year.
The two biggest jumbo lenders in California have either pulled back significantly (Wells Fargo), or gone belly-up entirely (First Republic) and another, California-based MUFG Union Bank, got absorbed by U.S. Bank and its wholesale mortgage operation shut down. These changes are affecting the whole jumbo ecosystem, and not just in California.
Gregg Busch, a D.C.-based banker at First Savings Mortgage Corporation, told Nunes that underwriting on jumbos had tightened significantly over the last year, with depository lenders making fewer exceptions to their standard guidelines. Rates for jumbo loans at bank branches are also competitive compared to those offered to their correspondent partners.
“At one of the biggest players in the secondary market for correspondent lending, if you go straight to the bank, you can get a mortgage on a 30-year fixed rate at 6.5%. For us, that same rate through their correspondent channel is 7%. When banks do jumbo loans, they want to have money from the client in the bank. It’s all about liquidity,” Busch said.
First Republic Bank courted Silicon Valley’s millionaires with interest-only jumbo mortgage loans at rock-bottom rates, and it proved fatal when depositors freaked in the wake of Silicon Valley Bank and Signature Bank’s failures. The days of banks winning borrowers with extremely low jumbo rates to get their deposits on the books might be waning. The deposits at First Republic just weren’t ‘sticky,’ one banker told Nunes. Will it be worth the risk for other depositories?
In response, nonbanks are positioning themselves to gain some market share left by depositories, though they aren’t expected to make major inroads anytime soon.
Our analysis found that United Wholesale Mortgage, Guaranteed Rate and Rocket Mortgage were all active in the jumbo space, but on the fringes of the top 10.
Alex Elezaj, chief strategy officer at UWM, said the new jumbo offerings are not “a big needle mover for UWM in terms of originations or profitability,” but help put brokers in a position to compete with big banks and retail lenders.
UWM — like other IMBs — can’t beat the banks’ low cost of funds, which is their clients’ deposits, but the wholesale lender has its overall cost structure and competitive margin in its favor, he noted.
There’s a ton more detail about different lender strategies, pricing challenges and emerging jumbo markets (hi Seattle, hi Denver!), so please check out part I here and part II here.
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