It’s no secret that mortgage lending has hit the skids in recent months. There are considerably fewer borrowers refinancing their existing mortgages and home purchases are still pretty sluggish.
Earlier this year, Black Knight Financial Services said mortgage origination volume fell to its lowest point on record for a February, with records dating back to the year 2000.
But one area of the market is on fire. I’m talking about the $1 million to $10 million loan amount niche, also known as super jumbo. Pretty much any loan officer’s dream.
Despite there not being a secondary market for such loans, banks are more than happy to hand them out to their wealthiest clients and keep them on their books.
After all, they’re low risk borrowers who also happen to have a lot of money. And wealth management seems to be all the rage these days.
15,000 Mega Mortgages Were Originated During Q2
Banks reportedly made more than 15,000 mortgages with loan amounts between $1 million and $10 million during the second quarter in the nation’s top 100 metros, the highest total ever according to CoreLogic.
Additionally, sales of homes valued at $2 million and up increased to the highest level since at least 2006 during the first half of the year.
Surprisingly, this is happening at a time when all-cash home sales are also at record levels, which at first glance seems a little strange.
Back in May, RealtyTrac said cash was used for a record 42.7% of residential home sales in the first quarter of the year, which was up from 37.8% a quarter earlier and 19.1% a year prior.
The rich generally pay all cash as opposed to taking out a mortgage, but the crisis has produced a lot of fire sales thanks to the sheer number of underwater borrowers and foreclosed properties out there, which could explain the high all-cash share.
The Rich Have No Mortgage Limits
Still, the rich always have plenty of options, and with mortgage rates as cheap as they are, and banks desperate to get their hands on their assets, we’re seeing a lot more of these mega loans these days.
Per Bloomberg, the rich are happy to take out low-rate adjustable-rate mortgages instead of being forced to sell their stocks, which also happen to be at all-time highs.
And because they get mortgage discounts for having so much money, the deals are pretty hard to pass up. This explains why guys like Mark Zuckerberg and Buffett opt to take out loans instead of simply paying with cash.
Some of the banks issuing the largest number of mega mortgages say they don’t even have maximum loan limits for such clients. For example, Union Bank and Bank of the West will apparently consider any loan request.
Union Bank said it has originated more than 350 mortgages with loan amounts of $2 million or more this year. And loan requests at BNY Mellon for similar loan amounts have increased 30% this year compared to 2013.
Sadly, this comes at a time when first-time home buyers are struggling to take out relatively miniscule mortgages. Of course, the wealthy have no problem putting down 30% or more, which greatly increases their options and chances of approval.