Jumbo loans: Loans for the Future?

Underwriting guidelines remain strict on the conforming loans guaranteed by Fannie Mae and Freddie Mac, but lenders are becoming more accommodating on nonconforming, or jumbo, loans, the New York Times says.

Jumbo loans are mortgages of $417,000 or higher in most areas; the nonconforming threshold is $625,500 in pricier markets like New York.

In short, jumbos are typically issued to the most creditworthy borrowers and require higher down payments. And over the last few months, lenders have begun approving loans for jumbo borrowers who don’t precisely meet the usual rules for, say, income documentation or credit score minimums.

Take this real world example

Peter Grabel, a senior loan originator with Luxury Mortgage in Stamford, Conn., says the loosening is more of a common-sense approach, “not wild and crazy.” Lenders are “just sort of unwinding the things that might have been overly onerous,” he said.

For example, lenders typically require at least two years of tax returns to document the income of self-employed borrowers. Mr. Grabel said he recently had a client who had owned his own business for only a year, but was still able to obtain a loan because he had a solid track record working in the same industry and had significant funds on reserve.

Lenders have also been more willing to count capital gains from stock as income if borrowers who receive stock grants as compensation can show a consistent pattern of cashing them in, Mr. Grabel said.

In this situation and in many others, consistency is key.

The attractive market

Borrowers who don’t fit neatly within the usual guidelines but are otherwise qualified are an increasingly attractive market for lenders.

“We’ve been in a bit of a down market, first with the drop in refis, and then the purchase market hasn’t picked up the way people expected,” said Jordan Roth, a mortgage specialist at the GuardHill Financial Corporation, a mortgage banker and brokerage in Manhattan. “So lenders are having to get a little bit more creative. They’re taking good, strong loans with quality borrowers who have compensating factors to overcome a challenge in credit, income or whatever.”

W. J. Bradley Mortgage Capital, a Colorado lender licensed in 37 states, is preparing to begin a program targeting well-qualified borrowers who aren’t served by the broader market, according to Michael Kime, the chief operating officer. These borrowers will include the self-employed, like “the guy who runs a company with 200 employees, and all his employees can get a loan but he can’t because his ability to document his income is impaired.”

“As you go outside the agency guidelines, you’re going to have whole new tiers of borrowers who don’t have access to credit if we don’t figure out how to get the private capital back in play.”