What do you do when even wealthy people begin to face an increasingly hard time purchasing a home in a vertical market completely disconnected from income trends? You reduce downpayments and lower credit standards, of course.
Where have we seen this story before…
From the Wall Street Journal:
The nation’s largest bank by assets plans to announce Wednesday that it is lowering the minimum credit score and down payment it requires for mortgages as big as $3 million.
The New York firm’s moves follow similar steps at Bank of AmericaCorp., Wells Fargo & Co. and other banks on requirements for “jumbo” mortgages—those that exceed $417,000 in most parts of the country or $625,500 in pricier markets. At the same time, some big banks are backing away from smaller loans where they see higher regulatory costs and litigation risks.
Guess it’s gonna be shipping container apartments for everyone else.
Since the financial crisis, a recovery in the mortgage market has faced several challenges, but the jumbo market—popular with well-heeled borrowers—has bounced back along with sales of higher-priced homes. In the second quarter, overall jumbo originations rose to an eight-year high of $93 billion, up 58% from a year ago, according to a preliminary estimate from industry newsletter Inside Mortgage Finance.
By dollar volume, jumbo mortgages given out by lenders last year accounted for about 20% of all first-lien mortgages, used mostly to purchase or refinance a home, according to Inside Mortgage Finance. That is up from 5.5% in 2009. The last time jumbo mortgages accounted for a larger share was in 2005.
2005…got it.
For jumbo mortgages, J.P. Morgan plans to lower the minimum FICO credit scores it requires to 680 from 740 for loans on primary single-family purchases, second homes and certain refinances on those properties.
The increase in jumbo lending underscores a housing recovery concentrated in higher-priced homes. Sales of existing single-family homes priced between $750,000 and $1 million, for example, increased 21% in June from a year prior, according to the National Association of Realtors.
Sales of homes priced between $100,000 and $250,000, in contrast, increased 12.5%, while those priced lower fell 3%.
I don’t call this the oligarch recovery for nothing.
Rising home values have helped give lenders confidence that lower down payments won’t leave borrowers at risk of owing more on their homes than they will eventually be worth.
J.P. Morgan’s changes, which go into effect Wednesday, will reduce minimum down payments for some borrowers to 15% of the purchase price for single-family homes serving as the borrower’s primary residence, down from 20% currently. That change applies to mortgages between $1.5 million and $3 million; the bank last year made the same change for jumbo mortgages up to $1.5 million.
The bank also is lowering down-payment thresholds for jumbo mortgages used for second homes, such as vacation homes, and certain two- to four-unit properties. The bank says the changes simplify its offerings.
Several large banks have recently lowered their jumbo-mortgage requirements. Wells Fargo last year cut the minimum down payment it requires to 10.1% from 15% for jumbo mortgages of up to $1 million.
In June, Bank of America began allowing first-time home buyers, which it defines as people who haven’t owned a home for at least three years, to make 15% down payments for jumbo mortgages of up to $1 million. The bank previously excluded this group of buyers from its 15% down-payment option, which it rolled out in 2013.
Gotta love these banks. They just make shit up. Somehow “not owning a home for three years” = first time homeowner. Aren’t you glad we bailed them out?
For related articles, see:
Another Tale from the Oligarch Recovery – How a $1,500 Sofa Costs $4,150 When You’re Poor
Just Another Tale from the Oligarch Recovery – $100 Million Homes Being Built on Spec
Tax Breaks for Oligarchs – The $100 Million Manhattan Apartment with a Property Tax Rate of 0.017%
In Liberty,
Michael Krieger
Donate bitcoins: 35DBUbbAQHTqbDaAc5mAaN6BqwA2AxuE7G
Follow me on Twitter.
