The economic upheaval brought on by the coronavirus pandemic has banks tightening their lending standards for even their wealthiest borrowers.
Borrowers are having trouble securing new “jumbo mortgages” and refinancing their existing debt, according to Bloomberg. Jumbo mortgages are loans that are too pricey for the federal government to back — around $510,400 across most of the country and $765,500 in New York City and parts of California — so lenders take on all of the risk.
Even well-heeled borrowers with squeaky clean credit records are being turned down. Aerospace executive David Adler tried to refinance his $700,000 mortgage on his Irvine, California home that he bought eight years ago to get a lower interest rate. But his lender, U.S. Bank, refused.
“I told the guy at the bank, ‘I’m trying to use logic here,’” Adler told Bloomberg. “And he said, ‘That’s your problem.’”
The availability of jumbo loans dropped 37 percent last month — double the drop for the overall mortgage market.
Banks are also charging more for jumbo mortgages relative to conventional mortgages than they have in nearly seven years. As of last week the interest rate on a 30-year fixed jumbo loan was about 30 basis points higher than the rate on a normal mortgage.
Jumbo mortgage holders are just as likely to stop paying their loans as conventional borrowers. Around 5.5 percent, or 131,000, of jumbo borrowers have asked for some form of forbearance, more or less on par with the 6 percent of overall borrowers.
Banks have also pulled credit lines for smaller mortgage lenders they finance and stopped buying loans from correspondent lenders, partly because they don’t have the liquidity to do so. [Bloomberg] — Dennis Lynch