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TBTF Mega Banks Lowering Downpayments and Credit Standards to Keep High End Housing Market Going

August 6, 2015

TBTF Mega Banks Lowering Downpayments and Credit Standards to Keep High End Housing Market Going

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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. 

 

…click on the above link to read the rest of the article…

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