Commercial banks are pulling out of the jumbo market rather suddenly – after dominating it for the last year or so.
The question is why and what does it mean?
When Service Matters
We have always been able to crush every commercial bank when it comes to service, as we are far more responsive, we can close far faster, and we have far more financing alternatives (jumbo, non-QM, FHA, Fannie, Freddie, VA, hard money, etc.).
But – when the housing market slows, and both buyers and sellers become more patient, service becomes less important – making it more difficult for more mortgage banks to compete (as a reminder, there are three primary channels for mortgages: commercial banks/credit unions; mortgage banks; and mortgage brokers).
Making matters even more difficult was how crazy aggressive banks and credit unions got with their rates over the last year, as one major bank was offering rates that were 1% or more lower than our rates, and our rates are notoriously low among mortgage banks.
SO – it was extremely difficult for us to compete with that bank over the last year.
That is why we were both delighted and surprised to see so many major commercial banks significantly hike their rates over the last week or two.
The rate increases were so high that we can now match or beat any of the commercial banks in our market – allowing us to again beat them with both rates and service!
Banks Lost Their Advantage – Why?
An advantage banks have over mortgage banks is their very low “cost of funds” – which they get from all of the deposits they have for which they pay no interest (and they can effectively lend out those deposits). But, over the last six months, banks have been forced to offer higher and higher returns for those deposits in order to retain depositors who are likely concerned about inflation (there is a bank near my home advertising 4% CD rates, for example, and I doubt they offered anything even close to that last year).
So, it is my guess that banks have to start charging higher interest rates for their mortgages to offset their much higher cost of funds (now that they have to pay for deposits again). As an aside, prior to the 2008 meltdown, when interest rates were in a more “normal” environment, those of us in the mortgage banking and broker communities could almost always match or beat any rate a commercial bank offered. The big advantage that commercial banks seem to have really surfaced after 2008 when rates fell to extraordinary lows – and that advantage has dissipated over the last six months.
Welcoming Agents Back To JVM
And finally – I’d like to welcome ALL of the agents who have been referring buyers to commercial banks back to JVM (for both low rates AND great service).
There are no hard feelings here at all. 😊
Welcome home… we left the light on for you.
Jay Voorhees
Founder | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167
