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Wells Fargo Suspends Jumbo Mortgages
In this uncertain market, demand for jumbo mortgages is declining as more homeowners seek forbearances and investors look to more secure loans during the Covid-19 crisis
Amidst this new era of market uncertainty, jumbo loans are no longer top of mind for investors, according to a report by Bankrate.
As more and more homeowners are requesting forbearances because of job losses related to the coronavirus pandemic, lenders are feeling the pinch. Simultaneously, investors are now looking to more stable options, like mortgage bonds for government-backed loans, which assures they’ll receive payments, even when borrowers are in forbearance.
Jumbo loans, or non-conforming loans, are mortgages for pricier properties that exceed limits established by the government agencies that back many home loans issued by lenders in the U.S. They generally can range from about $510,400 to $765,600 in more expensive metro areas, and are riskier because they’re not backed by Fannie Mae or Freddie Mac. In contrast, the Federal Housing Finance Agency (FHFA) limits conforming loans to $510,400 in most counties.
“Most mortgages get made by lenders who then sell it to someone else,” Greg McBride, CFA and chief financial analyst at Bankrate, said in a statement. “If there is no willing buyer, lenders will stop closing loans so as not to be stuck holding the bag.”
Now, in this era of uncertainty, some large mortgage lenders like Wells Fargo have put a pause on the purchase of jumbo loans originating from other lenders.
“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,” Tom Goyda, senior vice president of consumer lending communications at Wells Fargo, said in a statement.
However, other large lenders, like Citi, are continuing to offer jumbo loans at this time, Maggie Monaghan, Citi spokesperson, confirmed to Inman.
With Congress’ move to pass the Coronavirus Aid Relief and Economic Security (CARES) Act on March 27, homeowners are now able to request forbearance on mortgage payments for 180 days and are exempt from foreclosures on federally backed loans for 60 days.
Although these measures will help homeowners catch a break, it makes things much more tight for companies servicing mortgages because they’re required to continue to make payments to investors during forbearance periods, risking a liquidity shortage. Fannie Mae and Freddie Mac, however, are the only two servicers who would be protected from losses if homeowners didn’t pay on conforming loans, drawing investors toward these servicers instead.