Housing MarketMortgageSecondary

Rising home prices are fueling the private-label market

Total issuance backed by jumbo loans stands at $33 billion so far this year

HW+ JPMorgan Chase

J.P. Morgan, through its private label conduit, J.P. Morgan Mortgage Trust, so far this year has sponsored 13 private-label securitization offerings backed by jumbo loans valued at $13.8 billion.

Those offerings, current through the end of October, involved more than 14,000 jumbo mortgages, according to bond-rating agency presale reports. The data show that J.P. Morgan has been a dominant force in the jumbo-loan securitization market so far this year.

MAXEX, an Atlanta-based digital mortgage exchange in which J.P. Morgan is an investor, issued a report this month on private-label market activity revealing that there were a total of eight jumbo-loan securitizations priced in September alone. They were backed by pools of mortgages valued at $5.73 billion, according to the MAXEX report and additional information from Kroll Bond Rating Agency. The offerings  included “a massive deal from J.P. Morgan,” which was priced at $1.647 billion, “and included loans traded through the [MAXEX] exchange,” the report states.

The other jumbo securitization deals in September, with the associated loan-pool values, were undertaken by the following issuers: 

  • Wells Fargo, $644 million
  • Redwood Trust, $449 million
  • Rocket Mortgage, $968 million
  • Goldman Sachs, $874 million
  • Citigroup, $345 million
  • AIG, $429 million
  • Provident Funding, $372 million

Total jumbo-loan residential mortgage-backed security (RMBS) issuance for 2021 now exceeds $33 billion, according to the MAXEX report. 

The MAXEX trading network includes more than 250 bank and nonbank originators, along with 20 high-profile investors. Since its launch in 2016 through the end of September, loans traded through the MAXEX exchange “have been involved in 94 securitizations,” the MAXEX report states.

Presale reports from Moody’s Investor Service, S&P Global Ratings and Kroll Bond Rating Agency examined by HousingWire show that J.P. Morgan’s 13 jumbo-loan securitizations so far this year involved loans purchased through the MAXEX exchange in a range of 1.1% to 39% of all loans for those deals. The bulk of the jumbo loans for the pools backing the offerings, however, were originated by three nonbanks: Guaranteed Rate, United Wholesale Mortgage and loanDepot.

“Yes, the jumbo market has expanded as we’ve seen property values increase nationwide,” said Tom Piercy, managing director of Denver-based Incenter Mortgage Advisors. “The appetite for jumbo loans has increased significantly.”

Bond-rating agency data also show that the bulk of the jumbo loans — 40% to 50% in most of the offerings sponsored by J.P. Morgan — were originated in California, with a high concentration of them from the Los Angeles and San Francisco metro areas.

A jumbo mortgage exceeds the conforming loan limit set in a region to be eligible for purchase for by Fannie Mae or Freddie Mac. Rick Sharga, executive vice president of marketing for real-estate research firm RealtyTrac, points out that California “by far” has the highest home prices in the country, “with the median price of a home in the state over $800,000.”

“Probably something like 10% of existing home sales across the country are coming out of California, so you’re going to have a higher percentage of jumbo loans in California relative to other states,” he added.

Although nonbanks to date have been the primary source of jumbo-loan originations for private-label deals, banks are sitting on a huge stockpile of jumbo loans now kept in portfolio. A tally by the industry publication Inside Mortgage Finance shows that the top five nonagency jumbo-mortgage originators through the first six months of 2021 were all banks. Collectively over that period, those five banks — Chase, Wells Fargo, Bank of America, First Republic Bank and U.S. Bank — originated a total of $110 billion in nonagency jumbo mortgage volume.

For now, however, industry observers don’t see banks moving to securitize the jumbo loans held in portfolio. Sharga says the banks like jumbo loans because it’s one way to build their customer base. “Those loans go to high net-worth individuals that they also want to provide other banking services to, so they keep those loans in their portfolios,” he said. 

Another factor affecting banks is that deposit growth is stronger than loan demand right now, so banks need to find ways to put those deposits to work to make loans, which are assets and a source of interest income for the banks.

“As I look at the market, there is all this cash, the deposits,” John Toohig, managing director of whole loan trading at Raymond James. “And as long as that is sloshing around like it is, you won’t see private-label deals coming out of the banks — until those deposits can get lent out. The banks are net buyers of jumbos today, not sellers.”

Regardless of whether the banks decide anytime soon or not to start securitizing their jumbo loans, the MAXEX report indicates that demand for private-label issuances will remain high. “Investor appetite for prime jumbo mortgage-backed securities … will likely increase as interest rates continue to rise,” the report concludes.

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