With banks again writing big mortgages, such as $1.1M for this ocean front home on Parker Lane in Marblehead.
Bad economy be damned. The market for a $6 million mortgage is not dead in Boston. In fact, demand for mega mortgages — $1 million and up — is on the upswing.
Bank and real estate executives say their wealthy clients still remain wary of the economy’s sharp needles, but acknowledge that with the Dow Jones Industrial Average up nearly 2,200 points over the past three months there’s growing confidence about the direction of their fortunes. That new confidence is liberating wealthy homebuyers to borrow again.
Jumbo mortgage activity is percolating even with virtually no secondary market for the loans.
Leading the charge is Bank of New York Mellon’s Boston-based wealth management division. The company’s in-house mortgage operations in Boston cater to the nation’s top 1 percent of wealth and have put up record numbers this year.
“We’ve seen significant growth,” said Erin Gorman, national sales director for the mortgage business at BNY Mellon Wealth Management. “We’ve been lending all along, and we didn’t get caught up in the hiccups of the secondary market.”
During the first five months of 2009, BNY Mellon’s jumbo mortgage activity is up 32 percent on a dollar volume basis, compared with the year-ago period. Gorman said Boston is one of the best markets.
Jonathan Radford, Coldwell Banker Residential Brokerage’s No. 1 Boston agent in 2008, said there has been renewed interest in the high-end market since April 1. He said 36 properties, of $1 million and up, went under agreement in March, and that figure jumped to 105 in April and 170 in May.
Even though BNY wealth management’s average deposits fell 12 percent in the first quarter, the average loan balance surged 23 percent to $5.4 billion, compared with the year-earlier period. That increase was fueled by a record level of jumbo mortgage originations. With an average size of about $1 million, jumbos have been a bright spot amid lower asset and wealth management fees, according to analysts at Barclays Capital.
BNY Mellon doesn’t discuss individual mortgage deals, but real estate records filed in Boston reveal plenty of big-ticket deals in recent months. Rivals include Boston Private Bank & Trust Company, First Republic Bank and even some community banks, such as Needham Bank, have stepped in to meet demand.
BNY Mellon, however, seems to have the most capital to throw around for its clients.
For example, recently retired Staples Inc. director Martin Trust took out a $6.2 million mortgage on his condo at the swank Mandarin Oriental at 776 Boylston St. Trust received an interest-only, adjustable rate mortgage from BNY Mellon that starts with a fixed interest rate of 4.75 percent, according to documents on file at the Suffolk County Registry of Deeds. The interest rate will adjust to 2.25 percent, plus the one-year London Interbank Offered Rate (LIBOR). Today, that’s cheap money, about 3.85 percent, because the one-year LIBOR rate has been about 1.6 percent. Another recent deal was a $1.16 million mortgage Boston Private wrote for the owners of a Beacon Hill residence on Mount Vernon Street, records show.
John Sullivan, executive vice president of Boston Private Bank’s residential lending department, said even wealthy clients have to feel secure about their jobs and their incomes before taking out big mortgages.
“It’s the same as someone taking out a $200,000 mortgage,” Sullivan said.
Like BNY Mellon, Boston Private originates adjustable-rate mortgages and holds them in its loan portfolio. When the global credit crisis vaporized the secondary market for jumbos, portfolio lenders could keep doing what they were doing because they were not relying on anyone else to buy their loans.
Another advantage also materialized: portfolio lenders scooped up new clients whose banks stopped doing big jumbos when the secondary market froze.
Gorman said some rival lenders are returning to the jumbo market as the economy stabilizes.
“As money elsewhere dried up for borrowers, we earned a reputation as the go-to player in jumbo mortgages. And that puts us in a strong position as other lenders gingerly move back onto the field.”
Lanse Robb, who brokers the sale of mansions and estates on the North Shore for LandVest Inc., said prices have come way down in the past year, but buyers still want a discount even after asking prices have been lopped off by millions of dollars.
“When they feel this is the bottom, the jumbo market will really take off,” Robb said. One of his most expensive listings is the $12.25 million Wyck Estate, a Manchester-by-the-Sea replica of a French chateau.
Sullivan said jumbo mortgage lending presents a great opportunity for a bank to expand its relationship with a client. New business, he said, is mostly referrals from other clients, real estate brokers, financial advisers, lawyers and accountants.
“The mortgage leads the way as an introduction to the bank,” Sullivan said.