Two months later the land rush of other issuers into jumbo and "super" jumbo MBS hasn't materialized, though the rumor mill continues to churn out the names of firms working on deals, including Goldman Sachs, PennyMac and even PIMCO.
It's believed that once jumbo securitizations return in earnest, lending volume in these nongovernment-guaranteed loans will bloom, or at least improve dramatically. However, according to survey figures compiled by National Mortgage News, it appears that jumbo lending is beginning to show nascent signs of a recovery, or at least a stabilization of sorts. In the first quarter, all residential lenders funded $16.3 billion in jumbo loans, a 2% decline from the same period last year. The slight drop came during a quarter when all residential fundings fell dramatically, by 32%.
In other words, it appears that jumbo production is gaining an even bigger piece of the origination pie—but not because there is now a securitization market supporting the sector. The largest originators of jumbo loans—non-Fannie Mae/Freddie Mac jumbo loans, that is—are placing the mortgages on their balance sheets.
"There's not much of an incentive to sell them at this time," said Mike McMahon, an executive at Mill Valley, Calif.-based Redwood Trust. McMahon noted that commercial and industrial loans are running off the books of banks "and they need to replace them [with something]."
With deposit rates (cost of funds) at 1% or less, banks, thrifts and credit unions that hold jumbo loans can earn fat returns especially when the yield on the product tends to be higher than on Fannie/Freddie mortgages.
McMahon said he could not talk specifically about Redwood's plans for additional jumbo MBS, but it's no secret that the publicly traded REIT is out in the market buying product for future bonds and likely will issue another security by yearend. (Its $238 million deal was oversubscribed by fivefold.)
Meanwhile, during the first quarter, the top five jumbo originators had a mixed performance with some showing large gains, while others suffered declines. Bank of America, which ranked first in the sector, saw its jumbo production fall 26% to $3.28 billion. Wells Fargo, the No. 2 producer, was flat with $1.98 billion.
But PHH Mortgage had strong growth (up 102%) as did Chase (up 108%).
CitiMortgage, which has been scaling back its involvement in residential finance for 18 months, experienced a 56% decline.
Besides jumbo volumes holding their own in the first quarter, there are some new entrants to the business as well. Earlier this month, Bank of Internet USA launched a jumbo program in California, hiring Jerry Konzen, a former top executive at Thornburg Mortgage to oversee the effort.
