As Investors Return to Jumbo Mortgages, Big Banks Sell

As home prices rise, demand for jumbo mortgages is rising too. And as investors look for new ways to cash in on the housing recovery, these mortgages are starting to look more attractive.

Since the housing crash began, the market for jumbo mortgage-backed securities, pools of these loans sold to investors, has been close to nothing. Banks still make the loans, but hold them on their books. Now that is beginning to change.

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While the number of jumbo loans originated in the first quarter of this year was up 15 percent from a year ago, the number of those loans securitized and sold by lenders was up 400 percent, according to Inside Mortgage Finance. Four billion worth of jumbo loans were sold to investors, more than the $3.5 billion in jumbos originated in all of 2012.

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Both Chase Mortgage and Everbank began issuing non-agency mortgage-backed securities at the beginning of this year. Before that, Redwood Trust and Credit Suisse were the only players in the market, and small players at that. Chase has made a big push in the space, rising to the number two spot in jumbo loan originations from number four in the market, and in turn opening the door for investors.

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"We think over time it is important that private capital gets back into the mortgage business, and as guarantee fees have continued to increase over the last couple of years, the economics are right to start to bring that private capital back into the mortgage market," said Kevin Watters, CEO of Chase Mortgage.

Guarantee fees are those charged to lenders by Fannie Mae and Freddie Mac. The two mortgage giants purchase the vast majority of loans originated today. Fannie and Freddie raised their loan limits in high-cost housing markets, taking a chunk out of the jumbo loan market, but as their fees rise and start to reach those of private label deals, the private deals become more attractive. It is, however, still a small share, just 7 percent of the $54 billion in jumbo loans made.

"The demand for non-agency MBS still is not that strong yet," said Guy Cecala of Inside Mortgage Finance. "The yields are pretty good for lenders and it's a profitable portfolio product."

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As home prices rise, though, the opportunity grows in the jumbo market. Sales of homes priced between $750,000 and $1 million were up 41 percent in April from a year ago, while sales of homes priced below $100,000 were down nearly 10 percent, according to the National Association of Realtors.

"People who weren't sure about whether they were going to buy a house or not are coming back in, and that's especially true of the affluent buyers," said Watters. "I know at Chase at least we've also put a lot of emphasis on making sure we're doing what's best for those affluent buyers, including adding more bankers and working with our chase private client customers to really focus on opportunities in the jumbo space."

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Watters admited that investors are still slow to return, as the private label market tries to figure out what securitization standards should be. The complete lack of standards during the housing boom, when securities were issued with bits and pieces of loans and wide ranges of risk, led to the downfall of both the mortgage and the housing markets.

"We are not slicing and dicing any loans. We're selling loans as whole loan products," assured Watters. "These are well-underwritten loans, great documentation, great borrowers with strong fico scores, large down payments, so these are great credit products, great investment for people who are looking to get additional yield."

—By CNBC's Diana Olick; Follow her on Twitter @Diana_Olick or on Facebook at

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