The Real Deal Miami

Could tax reform kill the jumbo mortgage market?

New rules could dampen the market for big resi loans
December 26, 2017 05:30PM

First Republic’s Michael Roffler (Credit: LinkedIn, iStock)

The GOP tax plan could put a squeeze on the market for jumbo mortgages, which banks have been leaning on more heavily since the financial crisis.

Jumbo mortgages are loans that are too big to sell to Fannie Mae and Freddie Mac. In most parts of the country, a jumbo loan is one that is above $424,100. Banks usually keep these loans on their books as wealthy borrowers are less likely to default, and the jumbo-loan market saw its biggest dollar volume last year since 2006, the Wall Street Journal reported.

But parts of the Republican tax plan passed last week that reduce the size of loans eligible for the mortgage-interest deduction and restrictions on property taxes that can be deducted from homeowners’ tax bill could make wealthy buyers think twice about acquiring a second or third home.

“We’re already living in a rate-lock world,” said Ben Graboske of the mortgage data firm Black Knight. “Now you’re going to add this.”

High-cost mortgages make up the majority of the market in areas like New York City, where 84 percent of Manhattan purchase mortgages this year were for more than $500,000, according to ATTOM Data Solutions.

It’s too early to tell how the tax plan will impact the jumbo-mortgage market, but those lenders that focus heavily on the space could see more meaningful consequences.

First Republic Bank, for instance, saw its shares decline by 13.6 percent over the past three months as the tax bill came together, compared to a roughly 11 percent increase in the KBW Nasdaq Bank Index.

First Republic’s CFO Michael Roffler, though, said at a conference in early November that he doesn’t “think we view it as [a change] that totally stops the business and dives things to a halt.” [WSJ] – Rich Bockmann