Super Jumbo Mortgages

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Risk Factors For Super Jumbo Loans

Super Jumbo Mortgages present an increased risk to the lender in direct correlation with the size of the loan, substantially more than conforming mortgages. The increased risk of Super Jumbo mortgages is firstly due to the lack of "agency" support for these loans, effectively reducing the available pool of investors and insurers for all jumbo mortgages by an order of magnitude. Mortgages in excess of 1 million dollars have an even smaller secondary market of investors, and super jumbo mortgages in excess of 2 million dollars frequently require extensive "sourcing" of private investors prior to funding due to very minimal institutional investor coverage. The complex nature of funding these loans requires the use of Super Jumbo mortgage specialists, whose compensation requirements are generally too prohibitive for retail banks and mass market lenders to accommodate outside of niche geographic areas, leaving much of the business to private concerns. Private Mortgage Bankers generally focus primarily on doing fewer, but larger deals, and thus have a familiarity with how and where to get these larger loans done. Securitization of Super Jumbo mortgages has not met with the same success as conventional jumbo mortgages, although work in this area is ongoing throughout the financial community. The underlying lack of liquidity for Super Jumbo Mortgage securities is compounded by a reduction in lending capacity for the institutions which must service these larger loans; as they lack a ready market for secondary sale the loans remain "on the books" of the lender, tying up capital in servicing that would otherwise be invested again. The assets against which super jumbo mortgages are secured are primarily classified as "luxury" residential real estate, a segment which is highly prone to market volatility in gross dollar terms. Luxury homes also require substantially more time to market in the event of foreclosure.