Jumbo Rates Plunge

At 60% LTV this sounds like a very attractive return for banks and fairly low risk. This is where jumbo lending should be. And another underpinning for Manhattan real estate.

Our jumbo rates have dropped significantly (100 bps on some products) since the wsj article. Underwriting guidelines have become stringent but people who should be getting jumbo mortgages are the ones getting it. So our jumbo portfolio has been performing pretty well. So I'm not surprise by the decrease in rates overall. sunny.hong@bankofamerica.com

Shong, Is BAC sitting on these loans? Why is your firm being more aggressive as compared to before?

I'm sure if we're sitting on these loans but I would think we are for the most part. Our jumbo portfolios have been performing well and I think that's one of the reasons rates are down.

Hey man what do you put in your hot dogs?

I have no clue, how many do you want?

Fair enough. But just the truth. There is no secondary market out there except Fannie and Freddie so we are holding onto our jumbo portfolio. But there may be some investors purchasing these jumbo loans in which it may be sold off. So the answer holds truth for both holding and seling. And as I mentioned, our jumbos have been performing very well hence the aggressive rates. Better?

how many people are actually qualifying?

1) us treasury is sitting on 1 trillion of mortgages;
2) thru the asymmetrical nature of mortgages, BofA is sitting on a time bomb. If rates go up, you have to take a hair cut on your portfolio, if rates go down, mortgagees re-finance (put optioin);
3) given 0% default risk (thank you Geitner), macro interest rates set mortgages NOT default rates of your current ( what) 12 months ago $1MM+ loans? => in fact, historically, no mortgages except in the latter part of 2007 have mortgages gone from origination to default, thnk you mortgage fraud and flippers caught flat footed;
4) 60% LTV is fking great... but but but happens when prices in manhattan fall 40% more as I predict? Higher % of strategic defaulters are from $1MM+ mortgagees....
5) 60% LTV is not a static # and leverage increases exponentially when equity starts to shrink....

Good luck, Shong... me thinks I'd take the lump sum payout.

More than before. Wall street is cranking up the mortgage machine. They will start with higher quality jumbos. Should have occurred already but things like use of ratings, FDIC guidelines, etc are getting in the way. If the loans are conservatively enough written there will be buyers for at least the senior tranches. Of course the question of pricing comes up....

"There is no secondary market out there except Fannie and Freddie so we are holding onto our jumbo portfolio. "

Sounds significant. What are the implications?

dwell - the implications are tougher underwriting guidelines essentially. Bank that hold onto the mortgage will really want to make sure the buyer are full capable of paying the mortgage and then some.

west67th, you forget that the derivatives market, unlike the MBS market, is NOT dead. BofA can easily use IRS or CDS to hedge there position, they don't just sit there with naked exposure to interest rate swings. Come on, use that noggin of yours.

or IRS or short the S&P schiller or a bespoke OTC version of the same...

Thanks, sunny. Always good to hear from you.