In yet another sign that the mortgage market is completely volatile and far from liquid, top mortgage lender Wells Fargo has severely tightened its jumbo loan guidelines.
Going forward, the San Francisco-based bank now requires customers to have $250,000 in liquid assets in a Wells account in order to get approved for a jumbo home loan, per the WSJ.
Before this immediate market-driven change, I don’t believe there was any such rule in place, other than asking that the customer meet typical reserve requirements.
At the same time, Wells stopped buying jumbo loans from other banks by eliminating the product from their correspondent lending menu.
This means banks that resell Wells Fargo’s jumbo loan can no longer do so until told otherwise.
The bank has also reportedly stop offering cash out refinances, and has placed restrictions on HELOCs.
Update: You now apparently need $1 million in new deposits at Wells Fargo to get a jumbo refinance loan with the bank if you’re a new customer.
Additionally, they’ve lowered max LTVs across the board by 5% on all products. The move is intended to reduce risk and slow business since they’re already overwhelmed.
However, existing Wells Fargo customers will no longer need to jump through these hoops, so it’s a trade-off.
Why So Strict on the Jumbos?
- Wells won’t give you a jumbo loan unless you have $250k in one of their bank accounts
- New rule only applies to refinance loans, not purchase home loans
- Reflects the lack of liquidity in the mortgage market due to COVID-19
- And the fear that new jumbo loans could default if homeowners lose their income and/or jobs
Simply put, jumbo loans most likely need to stay on the bank’s books, as opposed to being securitized and sold on the secondary market.
That means these jumbos need to be of the utmost quality, as any payment default will be felt directly by the bank that holds them.
It appears Wells Fargo wants to know that its jumbo loan customers have a significant amount of assets at the ready in case they lose their job or their income drops in light of the COVID-19 epidemic.
On the other hand, conforming home loans that meet the guidelines of Fannie Mae and Freddie Mac, which includes staying below maximum loan amount thresholds, can easily be sold on the secondary market thanks to the Fed’s pledge to buy them under QE4.
In short, the conforming mortgage market is liquid, the jumbo loan market is not. At least not at the moment. That is subject to change assuming we’re able to make some headway on the coronavirus front.
But that doesn’t look to be in the cards anytime soon, so for now anything that isn’t totally vanilla is going to be harder to come by.
This also explains why fixed-rate mortgages are cheaper than ARMs at some banks.
What If You Need a Jumbo Loan and Don’t Have $250k?
- Wells Fargo isn’t the only jumbo loan lender out there
- If you still need a jumbo you’ll just have to shop around elsewhere
- Those looking to refinance can also pump the brakes and wait for things to normalize
- While Wells seems to have jumbo mortgage rates, their savings rates are abysmal
While there are probably plenty of homeowners out there with $250,000 cash on hand, there are likely many more without such funds.
For the time being, only larger depository banks will likely offer jumbo loans because they have the capital to retain them.
Smaller banks and nonbanks that must sell their mortgages, as opposed to keeping them in portfolio, will likely have to steer clear for now.
Assuming you don’t qualify under Wells Fargo’s new jumbo guidelines, simply shop elsewhere.
There are plenty of jumbo loan lenders out there, and while they’ve all definitely tightened their belts lately, chances are one will accept you without the need for a quarter million dollars cash on hand.
If you need a jumbo loan and are simply trying to refinance your mortgage, you can always just wait it out as well.
Chances are mortgage rates aren’t going higher this year or next, given the current situation.
Things will likely normalize in the mortgage world once the appropriate aid is distributed to loan servicers, banks, and the general public.
By the way, at last glance Wells was offering 0.05% APY on their Platinum Savings Account, which is bumped up to 0.08% APY if you maintain a qualifying checking account with the bank too.
On a $250,000 deposit, that’d be about $200 in interest over the course of a year. Sweet.
That being said, Wells Fargo appears to have decent jumbo mortgage rates, with their 30-year fixed advertised at 3.625% today and their 15-year fixed pegged at 3.25%.
Their jumbo ARMs are even more attractive, with the 7/1 ARM listed at 2.875% on their website.
Wells Fargo has had its share of controversies lately, including the fake account scandals and the lawsuit related to improper lock fees on mortgages.