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Why Lenders HATE Jumbo & Why JVM’s Jumbo Rates Are SO LOW

Why Lenders HATE Jumbo & Why JVM's Jumbo Rates Are SO LOW

JVM FHA OFFER ACCEPTED OVER CASH OFFER

As a brief aside – one of our clients recently had his 14-day-close FHA offer accepted over an all-cash offer – at the same price.

Why?

The listing agent knew our reputation and knew the appraisal would not be an issue (b/c of comps and b/c our buyer could cover a shortfall if necessary), and the seller liked our buyer more b/c of his “love letter.”

This is a reminder that love letters work, that we can close FHA in 14 days, and that even FHA financed deals can compete with cash – if presented properly.

WHY MORTGAGE BANKS HATE JUMBO

I frequently mention that jumbo rates are as much as 1% lower than conforming (Fannie and Freddie) rates, and I explain why in this blog: Why Jumbo Rates Are So Much Lower Than Conforming.

As a quick aside, jumbo loans are any loan that exceeds that conforming loan limit for the area.

Most mortgage banks hate jumbo and here are some of the reasons why:

  1. MORE WORK. Jumbo loans can easily require as much 10x more work to close, as a complex jumbo pre-approval alone can easily require 5 hours or more of work. Underwriting, condition chasing, and selling the loan (jumbo investors are very hard to satisfy) require many more hours of labor.
  2. MORE RISK. B/c jumbo guidelines are so much more complex; b/c jumbo investors (that buy loans) are very persnickety; and b/c jumbo loans are necessarily very large – they present far more risk. If lenders miss a condition or a compliance document, they can easily get hit with six-figure losses if they are unable to “sell a loan” to primary investors and have to instead sell loans on the “scratch and dent” market. Lenders face similar risks if a large jumbo borrower defaults – even after the loan has long since been sold to an investor (as investors can come back to the originating mortgage bank).
  3. WAY LESS PROFITABLE. Even without accounting for the extra labor and risk, jumbo loans are far less profitable in general b/c mortgage banks get far smaller “premiums” (or profits relative to loan size) when they sell jumbo loans – for a variety of reasons.

WHY JVM’S MORTGAGE RATES ARE SO MUCH LOWER

We know our jumbo rates are almost always up to 1/2% lower than our mortgage banking and broker competitors b/c we do rate surveys and b/c our friendly competitors literally complain about our rates quite often. 😊

Here are a few reasons why our jumbo rates are so low:

  1. NO LOAN OFFICER COMP. B/c we don’t have loan officers, we do not have to build “loan officer compensation” into our rates.
  2. WE DON’T HATE JUMBO. Many mortgage banks artificially push up their rates simply to discourage loan officers from selling jumbo loans (for reasons discussed above). In contrast, we love jumbo and are more than willing to operate on far thinner margins.
  3. EFFICIENCIES/JUMBO MACHINE. We have a large and highly trained team that specializes in jumbo financing – and that in turn allows us to process jumbo loans much more efficiently, with far less risk.
  4. BROKERS HAVE NO ACCESS TO COMPETITIVE JUMBO. “Mortgage brokers” are not aligned with a mortgage bank and instead submit loans to “wholesale lenders,” as I explain in this blog: 3 Primary Mortgage Lending Channels. For reasons I won’t go into, no wholesale lender (and therefore no mortgage broker) has access to the most competitive jumbo programs. Hence, the jumbo rates offered by brokers are always as much as 1/2% higher than ours.

In conclusion – we love jumbo, our rates are very low, and we want more jumbo loans (maybe that should have been my entire blog).

Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167

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