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If you're a business owner looking for a 30-year home mortgage loan of more than $417,000 — a “jumbo” — be prepared to have your documentation ready. Otherwise, a jumbo with a three- or five-year adjustable rate might be the better option.
That's the message from Insignia Bank CEO Charlie Brown, after a May meeting of the Federal Deposit Insurance Corporation's Advisory Committee on Community Banking. “There was discussion at the FDIC meeting that the secondary mortgage market ... is in a great deal of turmoil right now,” says Brown, a committee member.
A jumbo borrower, says Brown, may need to provide 12 bank statements from two accounts plus source documents on other deposits and tax return information. Then, Brown says, that could lead to 10 or 12 information requests after the borrower applies for the loan.
All the documentation makes it difficult for banks to underwrite a jumbo loan that can be sold on the secondary market. The other option is to offer a three- or five-year adjustable rate jumbos with less documentation and hold it in the bank's portfolio.
Brown says other bankers and the Florida Bankers Association are frustrated with tougher lending guidelines of the Federal National Mortgage Association and the Federal Home Loan Mortgage Corp., the primary buyers of loans in the secondary market.
Brown says this has led banks to hold more of their loans rather than sell them on the secondary market, which makes lending less flexible.
Already, Brown says instead of 50% of his bank's loans going into the secondary market, it's dropped to roughly 25%, with his bank holding the remaining 75%.
Brown observes that jumbo loan clients typically own a business with more complicated cash flows, which necessitates a more rigorous underwriting approach. That means more documentation of revenue sources that can service a loan, and thus a lot more paperwork.
Brown sums it up, saying, “They're asking for a lot of information that doesn't lead to better underwriting, just more paperwork.”
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