Jumbo Mortgages Play Bigger Function at U.S. Banks

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The jumbo mortgage business is getting bigger and bigger for banks.

According to an analysis of federal home loan data, those high-dollar home loans at six of the largest U.S. banks increased from 21% last year to 24% of mortgage approvals in 2015. These mortgages to the wealthy, typically valued at more than $ 417,000, have become increasingly popular with major banks in the wake of the mortgage crisis.

The latest numbers suggest that some lenders are continuing to increase jumbo mortgage lending due to regulatory pressures and other changes since the crisis, a strategy described in an article in the Wall Street Journal last month. In 2012, jumbo loans made up only 12% of all mortgage approvals with the six banks. The strategy has helped reduce lending to black and Hispanic borrowers, as people in these groups rarely receive jumbos.

“There’s a continuation of the trend that lenders want to be more risk averse,” said Maurice Jourdain-Earl, co-founder and chief executive officer of ComplianceTech, the McLean, Virginia, fair lending software company that received the data. The Wall Street Journal used the company’s LendingPatterns.com tool to analyze the 2015 information the company was receiving from banks before it was released this fall.

Jumbos are attractive because they typically feature borrowers with high credit scores, high down payments, and low default rates. And they’re not tied to government programs that help support home loans – programs that cost banks tens of billions of dollars in fines following the financial crisis.

The shift towards jumbos comes as a bank Profits are squeezed by super low interest rates. Following the litigation and fines that followed the financial crisis, banks are looking for companies that appear to pose less legal risk. And many banks keep jumbo loans on their balance sheets instead of selling them to investors, allowing them to use swelling deposit dollars.

The analysis comparing 2015 with 2014 was somewhat more limited than that used in last month’s journal article, which analyzed data from 2007 and 2014.

2015 data was available for six of the ten largest US retail banks:

JPMorgan Chase

JPM -1.36%

& Co.,

Bank of America Corp.

BAC -1.24%

,

Citigroup Inc.,

C. -1.73%

Wells Fargo

WFC -1.91%

& Co.,

PNC Financial Services Group Inc.

PNC -2.92%

and

SunTrust Banks Inc.

The information was not available to the other four lenders included in the journal’s previous article:

US Bancorp

;; TD Bank, the US unit of

Toronto-Dominion Bank

;;

Capital One Financial Corp.

, and

BB & T. Corp.

In all six banks, the proportion of total loan approvals to blacks, Hispanics and whites decreased somewhat between 2014 and 2015, while the proportion of approvals to Asians increased.

The shift of the big banks this year in the direction of jumbosthat aren’t endorsed by Fannie Mae or Freddie Mac was most pronounced at JP Morgan, the largest US bank by assets. Jumbo loan approvals at the bank rose to around 40% of all approvals last year, up from around 29% in 2014, according to the analysis. A bank spokeswoman declined to comment.

James Dimon, chairman and chief executive of JP Morgan, said last month that the bank favors these home loans, which it believes will help it grow lending faster than overall economic growth.

Bank of America and Citi saw the proportion of approved mortgages that were jumbos increased last year. At Wells Fargo, SunTrust, and PNC, jumbo credit levels last year were around the 2014 levels.

Also, the LendingPatterns.com tool does not take into account the fact that the threshold above which a loan is classified as jumbo is higher in certain expensive markets, so the tool is likely to overestimate the number of jumbos. For example, the previous journal analysis that included the country-specific limits calculated that Jumbos represented 22.5% of JP Morgan’s mortgages in 2014, lower than the 29% generated by the LendingPatterns.com tool.

There are already signs that this trend has continued into 2016. At JP Morgan, Chief Financial Officer Marianne Lake said last month that more than half of the bank’s origins are jumbos. Bank Wells Fargo recently outperformed Wells Fargo as the largest jumbo mortgage lender by US dollars, according to industry publication Inside Mortgage Finance.

“These are customers we like,” Ms. Lake told investors.

Write to Rachel Louise Ensign at [email protected]

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