Mortgage lenders boosting jumbo loan limits 2 months before regulator

Several aggressive mortgage companies are doling out bigger balance loans without sticking customers with the quarter-percent difference between a conforming loan and high-balance loans.

By Jeff Lazerson | jlazerson@mortgagegrader.com | MortgageGrader.com | October 10, 2021

Lenders are dangling a windfall for those in the market looking to purchase or refinance a home now for more than $548,250, jumping ahead of expected loan caps increases in November.

Several aggressive mortgage companies are doling out bigger balance loans without sticking customers with the quarter-percent difference between a conforming loan and high-balance loans.

United Wholesale Mortgage, PennyMac and Rocket/Quicken Mortgage are offering the same Fannie, Freddie conforming pricing for loan amounts up to $625,000. That’s a 14% jump or $76,750 more than the current $548,250 mortgage cap set by regulators at the Federal Housing Finance Agency.

In its Sept. 30 press release, United Wholesale Mortgage also said it will be accepting high-balance loans up to $937,500, an eye-popping $115,125 increase over the current high-balance or so-called Fannie Mae jumbo $822,375 limit for high-cost areas such as Los Angeles County and Orange County.

It’s worth noting that home prices have increased at a record-breaking pace in the pandemic year. Jeff Collins, a housing reporter here at the Southern California News Group, reported Thursday that price gains have been in the double digits for two years, rising 11.3% in 2020, and an estimated 20.3% this year. The median price of an existing single-family home has risen more than $200,000 in the same period — almost $2,000 a week.

True jumbo-sized mortgages (anything over $822,375 for Fan-Fred or $937,500 for UWM) tend to come with higher interest rates.

The bigger opportunity is Fannie and Freddie typically lower the required purchase down payment money or equity (in the case of a refinance) compared with most jumbo lenders.

Jumbo lenders typically require a minimum of 10.1% as a down payment or as much as 20%. The increased high-balance loan amount, however, would allow as little as 5 or 10% down on a $750,000 or $800,000 listed property, according to Matt Ishbia, CEO of UWM.

And running the loan application data through Fannie or Freddie’s underwriting engines allows for much higher debt-to-income ratios (roughly 49%) than true jumbo underwriting rules (roughly 43%). Take your principal, interest, taxes, insurance, association fees, monthly credit report bills and other bills like alimony or child support, for example. Divide that dollar amount by your monthly gross income to calculate the debt-to-income ratio for good credit borrowers.

None of the other lenders offering the new $625,000 loan limit announced increases to their high-balance caps.

(Full disclosure: My firm Mortgage Grader is a Rocket customer and a former UWM customer.)

Almost always, Fannie and Freddie offer the best fixed-rate mortgages across America, so long as the desired loan amount does not exceed $548,250. Or, for so-called agency high balance, it cannot exceed $822,375.

Each year at the end of November, FHFA announces new F&F loan limits for the upcoming year. The Housing and Economic Recovery Act of 2008 (HERA) created a permanent formula to calculate the new loan limits, according to FHFA. Once the FHFA announcement is made, most lenders immediately accept rate locks and fund mortgages based on the newly announced loan limits.

So, what gives? Why and how are these mortgage lenders jumping ahead of the mandated calculation and official FHFA announcement?

“It’s a marketing ploy,” said Guy Cecala, CEO and publisher of Inside Mortgage Finance. “It’s a way to attract someone not already a customer.”

Cecala believes the FHFA number come November will be higher than the $625,000 loan amount. “We think (conforming loan amount) it’s going to be higher, $635,000, $638,000,” said Cecala.

Another mortgage insider thinks lenders are safe goosing their numbers now.

“The bigger lenders have done the math on their own and they know the law,” said Dave Stevens, Mortgage Bankers, association president and chief executive officer emeritus.

My advice to you? Don’t fret about finding a lender for your jumbo mortgage. Put your internet detective hat on and search the web.

For the first six months of 2021, Rocket/Quicken was the top loan seller to F&F at 10% of market share (70% of the originations were consumer direct and 30% were by mortgage brokers). PennyMac was number two with 7% of market share, and UWM was number three with 5%, according to Inside Mortgage Finance.

Most mortgage brokers have a relationship with either UWM or Rocket/Quicken. Some mortgage bankers (or “correspondent lenders” in industry jargon) may sell their closed loans to PennyMac as 81% of its business is correspondent-based, according to IMF.

There may be other entrants to this new super-sized conforming loan limit of $625,000 such as digital lender Sage Mortgage.

“The agencies have established guidance on their methodology to update conforming loan limits,” said Brad Seibel, head of mortgages at Sage. “That guidance allows us to project forward and bring savings to the consumer now instead of waiting.”

Freddie Mac rate news
The 30-year fixed-rate averaged 2.99%, two basis points lower than last week. The 15-year fixed-rate averaged 2.23%, five basis points lower than last week.

The Mortgage Bankers Association reported a 6.9% decrease in mortgage application volume from the previous week.

Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $625,000 loan, last year’s payment was $41 less than this week’s payment of $2,632.

What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages without points: A 30-year FHA at 2.25%, a 15-year conventional at 2.25%, a 30-year conventional at 2.875%, a 15-year conventional high balance ($625,000 to $822,375) at 2.5%, a 30-year high balance conventional at 3.125% and a jumbo 30-year fixed at 3.375%.

Note: The 30-year FHA conforming loan is limited to loans of $477,250 in the Inland Empire and $548,250 in LA and Orange counties.

Eye catcher loan program of the week: A 15-year fixed rate at 1.875% with a two-point cost.

Jeff Lazerson is a mortgage broker. He can be reached at 949-334-2424 or jlazerson@mortgagegrader.com.

* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.