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   ARTICLE   |   From Scotsman Guide Residential Edition   |   July 2010

Hello, Jumbo

Keen insight and financial knowledge are required to greet the nonconforming market's return

If you've made it this far through the financial crisis, you know about the abrupt halt to the jumbo-loan market that took place a couple of years ago. In large part, this was brought on by the exodus of most investors from the business of purchasing mortgage-backed securities, particularly those backed by jumbo loans.

Recently, however, lenders and securities investors have begun cautiously trickling back into the business of jumbo loans -- i.e., those exceeding Fannie Mae and Freddie Mac conforming-loan limits. Many securities investors believe housing prices have bottomed out and that now marks a good time to put money into the jumbo market. In turn, some lenders have reintroduced jumbo products. By and large, however, these products are virtual carbon copies of one another and have similar guidelines. Many of these programs are capped at $2 million, with maximum loan-to-value ratios (LTVs) of 70 percent. In some cases, LTVs can be as much as 80 percent but usually only for loans of less than $1 million.

In addition, many jumbo lenders have odd requirements. For example, one investor renders borrowers ineligible for any financing if they own more than four properties, regardless of whether the properties are residential or commercial. Other investors require borrowers with credit scores below a particular level to have a specific amount of credit inquiries in the previous nine months, regardless of the reasons for the inquiries.

With such rules in place, brokers dealing in the jumbo market must develop a sharp awareness of their clients and of lenders' programs.

One catch about the jumbo-lending market is that many high-wage earners seeking nonconforming loans are self-employed. As most mortgage brokers realize, self-employed borrowers are, by definition, more-complex borrowers, and packaging their mortgage applications properly often requires a keen ability to read and analyze tax returns and financial statements. Moreover, brokers must present such financial information to underwriters in a lucid, coherent and proper fashion.

Brokers who don't have the proper training or expertise likely will find it difficult to bring jumbo borrowers to the closing table. In many cases, the difference between dead deals and done deals comes down to how well a broker presents income information to an underwriter for review.

When dealing with affluent borrowers, it's possible to discover the once-common stated-income profile: great credit, plenty of assets and a favorable LTV. The problem, however, is that stated-income programs continue to be rare.

When working with jumbo loans, brokers often must work regularly with a borrower's accountant. This can offer an opportunity to review a draft copy of unfiled tax returns. After reviewing the draft, a broker can help the accountant prepare the return in such a way that can present the borrower well on paper from an underwriting standpoint while also staying within ethical boundaries and adhering to generally accepted accounting principles.

This can be especially helpful in today's market because many affluent borrowers historically filed their tax returns with aggressive write-offs, knowing that their credit and asset profiles would still enable them to borrow money. Now, however, they must be less aggressive to obtain financing, and they need a professional to steer them down that path.

Mortgage brokers who understand when jumbo loans are feasible can help affluent borrowers achieve their homeownership goals. Brokers who develop their knowledge can carve out an important niche and help guide the re-emergence of the jumbo market.


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