Not ONE of the millennials who run JVM Lending was in the mortgage industry prior to the 2008 meltdown.
In their minds, it was just some ancient event like the iPhone invention, the French Revolution, the fall of Rome, or when that asteroid thingy killed all the dinosaurs.
In any case, I often regale them with stories about how, back in the day, mortgage banks and brokers could almost always beat the big commercial banks with jumbo rates.
AND… they roll their eyes, mutter “not again,” make fake gagging reflexes, and sarcastically ask me to tell them again how I had to walk 3 miles to school every day in blizzards, uphill both ways… (the last part is sort of true though, as I grew up in rural Minnesota).
Well… they can stop rolling their eyes!! Because jumbo’s back! Almost…
The Interesting Thing Is WHY Jumbo Is Back
1) Bank Friendly Regulations/Overhead
Prior to the 2008 meltdown, I could close over 100 loans per month with less than $35,000 of fixed overhead. Today, that same production can easily cost $500,000 per month because of all the regulatory requirements. Some of those regulations are necessary, but many were pushed through by the commercial banking industry because they knew they could never compete with ultra-low-overhead broker and mortgage bank models.
So that is a major reason why commercial banks took over a huge chunk of both the jumbo and conforming mortgage markets after 2008. But fortunately, the mortgage banking and broker worlds figured out how to navigate the regulations and recaptured most of the market share they lost.
SIDEBAR: Here is a blog I wrote about the difference between commercial banks, mortgage banks, and the broker channel: The 3 Primary Mortgage Lending Channels: Banks, Mortgage Banks & Brokers (in case anyone would like a refresher).
2) Cost of Funds
The primary reason commercial banks have always been so competitive in the jumbo market is because of their very low cost of funds or cost of capital, as they are able to effectively lend out the money their customers deposit with them. And as long they don’t have to pay those customers high yields for those deposits, commercial banks have a huge advantage (unless their competitor’s overhead is so extraordinarily low that it can overcome that advantage like I could pre-2008, as per above).
Anyway, over the last few years, banks have been forced to pay their depositors higher and higher yields to keep them from moving their funds out of the bank. And this in turn has increased their cost of capital and forced them to raise their jumbo rates – to the point where mortgage banks and brokers can again compete.
2022 Was A Blood Bath For Mortgage Banks
2022 was brutal for the mortgage banking world not just because the Fed started to jack up interest rates; it was also brutal because our jumbo foothold was completely destroyed!
Over 60% of JVM’s volume was jumbo, and it all melted away almost instantly in 2022 when several large banks like First Republic and U.S. Bank started offering rates as much as 1% LOWER than our rates.
They could do so because their depositors were not yet demanding higher yields. In addition, the investor that bought our loans with the lowest rates pulled out of the market, making our plight even worse.
Anyway, First Republic is now long gone, and the other banks are now contending with higher costs of capital and – offering much higher interest rates.
So, our jumbo rates are now on par with or lower than the rates many commercial banks are offering.
To be clear though, there are still a few commercial banks that beat us, but not by much anymore.
And – There Is That Service Thing…
We can close jumbo loans in 17 days; we respond to inquiries within the hour; we work weekends; and … we’re nice.
I once emailed a bank manager and suggested that she hire people to come to my door and kick me in the groin – because it would be way less painful than dealing with her technology, her phone system, and her customer service in general.
She was not amused, but I think my point was well-made. Banks are not renowned for their customer service, but JVM is. 😊
