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Jumbo mortgage market disappearing as lenders shun risk

The jumbo loan market is shrinking as some mortgage lenders are facing a liquidity crunch. [ANTONIO PEREZ/CHICAGO TRIBUNE]
The jumbo loan market is shrinking as some mortgage lenders are facing a liquidity crunch. [ANTONIO PEREZ/CHICAGO TRIBUNE]

The jumbo loan market is shrinking as some mortgage lenders are facing a liquidity crunch. It's the perfect storm for lenders as millions of homeowners are seeking forbearances after losing their jobs from coronavirus shutdowns and investors who buy bundles of jumbo mortgages have exited the market.

Jumbo loans are mortgages for expensive homes that are above the limits set by the government agencies that back a wide swath of the home loans issued by U.S. lenders. The maximum for a conforming loan is $510,400 in most counties, as set by the Federal Housing Finance Agency.

Demand for jumbo mortgages has dried up as investors turn to mortgage bonds for government-backed loans where "they're assured of receiving payments even if large numbers of borrowers are in forbearance," said Greg McBride, Bankrate chief financial analyst.

"Most mortgages get made by lenders who then sell it to someone else," he said. "If there is no willing buyer, lenders will stop closing loans so as not to be stuck holding the bag."

Mortgage companies such as Wells Fargo have halted the purchase of jumbo loans that originate from other lenders, but not "direct-to-consumer originations through their retail mortgage channel," said Tom Goyda, senior vice president, consumer lending communications at Wells Fargo.

"Due to unprecedented market conditions, Wells Fargo Home Lending is temporarily suspending the purchase of non-conforming mortgage loans from correspondent sellers, effective immediately and until business conditions stabilize," he said in an email statement. "This difficult business decision reflects efforts to prioritize how we serve customers and maintain prudent balance sheet discipline."

Some large lenders are still offering jumbo loans to consumers, however. Citi spokesman Maggie Monaghan said he bank is still offering jumbo loans.

Tribune News Service

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