Wells Fargo was No. 1 when it came to jumbo originations in 2022, with $28.7 billion originated, per HousingWire’s analysis. Wells was followed by First Republic (at $20.5 billion), Bank of America ($20.4 billion), JPMorgan Chase ($17.9 billion), U.S. Bank ($15.9 billion) and Citi ($13.7 billion). PNC Bank ($7.9 billion), Morgan Stanley ($7.5 billion) and MUFG Union Bank ($5.8 billion), later acquired by U.S. Bank, rounded out the banks in the top 10. Pontiac, Michigan-based United Wholesale Mortgage was the only nonbank on the list, in the ninth position with $7 billion in volume in 2022.

Yet much has changed since the start of the calendar year.

Inside Mortgage Finance (IMF) data shows that First Republic held the jumbo crown in the first quarter of 2023, with $3.7 billion in non-agency jumbo mortgages. Its volume declined 37% quarter over quarter and 55.8% year over year. Wells Fargo’s jumbo volume of $3.2 billion in the first quarter was down 43% compared to the previous quarter and 79% compared to the same period in 2022. 

First Republic’s reign was short-lived, largely because of its unique and risky jumbo mortgage strategy.

The regional bank focused heavily on jumbo loans, serving interest-only mortgages at super-low rates to wealthy individuals in Silicon Valley. First Republic went from $6.3 billion in jumbo originations in 2018 to $20.5 billion in 2022. Borrowers last year had a median income of $495,000 and properties had a median value of $2.4 million, per HousingWire analysis. Median rates were at 3.2%, compared to 3.25% for conventional loans.

Typically, borrowers didn’t have to start repaying the principal for a decade. The strategy enabled it to grow its assets during the pandemic, but left First Republic severely undercapitalized following the failures of Silicon Valley Bank and Signature Bank.

First Republic’s stock bottomed in March in the wake of the bank failures, and depositors rushed to pull their money out. The nation’s biggest banks stepped in to stabilize the lender with $30 billion of their own money, giving the Federal Depository Insurance Corporation time to find a buyer. After a weekend of negotiations, the FDIC sold First Republic to JPMorgan. It was the second-largest bank collapse in U.S. history. 

JPMorgan quickly said it would kill First Republic’s low-rate jumbo mortgage program.

“The loans themselves are… really creditworthy and being marked. They’re obviously going to have a much higher return going forward. But we’re not going to be putting a lot of jumbo, cheap jumbo mortgage loans in our books. And we’ve already incorporated all of our numbers into potential runoff,” the bank’s CEO Jamie Dimon told analysts. 

JPMorgan itself reduced its jumbo volumes to $2.9 billion in the first quarter of 2023, down 31.6% quarter over quarter and 75.4% year over year. 

First Republic’s ascendency in the jumbo market also reflects Wells Fargo’s decision to reposition itself, exiting the correspondent channel and focusing on minority homebuyers through its retail operation.

Bank of America, which ranked third on HousingWire’s list, said despite competitors reducing their footprint in the jumbo market, it hadn’t seen a significant increase in volume. IMF data suggests BofA’s production in Q1 2023 was $2.8 billion, down 29.5% quarter over quarter, the lowest drop among the country’s top five banks. Its jumbo volume also declined 76% year over year. 

Bryan Sherman, senior vice president and regional sales executive at Bank of America Home Loans, said the bank, which exited correspondent and broker channels to focus on its retail branches, never targets a particular product or program. BofA, however, recognizes that the current landscape benefits adjustable rate mortgage products, especially in the jumbo market. 

“In a rising rate environment, ARM products are definitely more popular for clients than fixed-rate products because they’re going to take the lowest rate they can, typically an ARM. They’re going to secure it until the market rebounds, and then potentially, they’ll look at refinancing into a lower rate,” Sherman said. “Some people are still choosing to lock on a 30-year fixed rate, but in a rising rate environment — typically in the jumbo space — ARMs are the preferred option for those clients.”

U.S. Bank originated $2.7 billion from January to March, down 34.6% quarter over quarter and 58.8% year over year, per IMF data. The bank closed its wholesale mortgage businesses it inherited through the acquisition of MUFG Union Bank in December 2022 and laid off staffers in July.

Citi expects the jumbo market to remain challenging for some time. The bank originated $1.9 billion in jumbos in the first quarter, down 23.6% compared to the previous quarter and 47% than the same quarter in 2022. 

Liz Bryant, head of retail mortgage sales at Citi, said recent financial sector stresses and tighter liquidity conditions caused lenders to pull back from leveraging their balance sheets. 

“Rates will likely remain elevated in today’s range in the coming period, regardless of federal monetary policy. If builders are adding more homes, we should continue to see purchase demand hold throughout the buying season,” Bryant said. 

Customer demand for jumbo loans remains strong, she said, driven by property appreciation, material and labor inflation low inventory in new developments and limited resale listings.  

The bank provides a high number of 30-year fixed-rate jumbo products, a good option in a rising interest rate environment, she said, noting that it’s not selling them on the secondary market. “We’ll explore the secondary market as opportunities arise,” Bryant said. 

Nonbanks enter the field 

HousingWire’s analysis of 2022 HMDA data shows that two large independent mortgage banks are capitalizing on big-bank pullback from jumbo portfolios, including UWM and Guaranteed Rate.

Rocket Mortgage was the top nonbank lender in non-agency jumbo loan production in the first quarter of 2023, per IMF estimates. Rocket originated $1.2 billion in volume, down 59.5% quarter over quarter and 64.7% year over year. UWM was the 9th largest jumbo lender by loan amount in 2022, with $7 billion in volume. The company was the seventh-largest by number of loans, with more than 6,690 loans. IMF estimates that UWM originated $651 million in non-agency jumbo mortgages from January to March 2023, up 70.5% quarter over quarter but down 71% year over year. 

“Across the board, we’ve seen banks back off of mortgages… which is a great opportunity for us and our brokers,” Alex Elezaj, chief strategy officer at UWM, told HousingWire. “But I still think banks like the jumbo product because of the customer acquisition play.”  

Starting this year, UWM changed its approach related to jumbo offerings, which resulted in the launching of six fixed-rate jumbo products in May. When announcing the new products, UWM said brokers would have access to “more competitive jumbo pricing, along with transparent investor guidelines and loan qualifications.”  

“Historically, we’ve kind of gone out to market with basically one product or one price, [and] then we tried to fit with the specific investor guidelines,” Elezaj said. “We took those same investors that are our partners, and we just aligned specific products to them.”

The new strategy offers a wider range of products, he noted. Elezaj said the new jumbo offerings are not “a big needle mover for UWM in terms of originations or profitability,” but help put brokers in a position to compete with big banks and retail lenders. UWM can’t beat the banks’ low cost of funds, which is their clients’ deposits, but the wholesale lender has its overall cost structure and competitive margin in its favor, he noted.

Meanwhile, Guaranteed Rate, which was the 10th largest lender by number of jumbo loans in 2022, is also looking for a piece of the jumbo pie, with 4,410 loans, according to HousingWire data. IMF estimates bring the company to No. 12 by volume in the first quarter, when it originated $690 million, down 37% quarter over quarter and 72.8% year over year. 

Kate Amor, senior vice president and head of enterprise products at Guaranteed Rate, said the lender remains “hyper-focused on being the best fintech retail originator in the country,” developing products that meet the needs of jumbo borrowers. 

“Nonbank jumbo is as competitive as it has ever been,” Amor said. “Guaranteed Rate continues to be a trailblazer in the jumbo market, having issued our own jumbo securitizations, and remains hyper-focused on offering a diverse range of products that serve all jumbo borrowers.”

Amor said retail banking failures created uncertainty in the market, with most depositories not active in the loan acquisitions space. Meanwhile, Wells exiting the correspondent channel created volatility in the secondary market, which smoothed out after a couple of months. 

The trend of retail banks underpricing 30-year fixed jumbos (non-economic pricing) has dissipated as deposits run off or pending capital requirements causing them to pause. However, “relationship pricing” is as strong as ever, Amor said. 

Do Wall Street firms have an appetite?

Large Wall Street firms see market opportunities with jumbo loans. For example, jumbo loans represented 96% of Goldman Sachs‘ total mortgage volume in 2022, the most of any lender.

Meanwhile, others taking an interest in the market are Northern Trust Co. (94%), Redwood Residential Acquisition Corp. (90%), BNY Mellon (88.8%), Charles Schwab Bank (87.9%) and defunct Silicon Valley Bank (87.7%). SVB originated $2 billion in jumbos last year, compared to $524.4 million in 2018, per HousingWire’s analysis.

Real estate investment trusts have also capitalized on banks’ retreat from the jumbo space.

In a recent call with analysts, Christopher Abate, CEO of Redwood, said the REIT will take advantage of Basel III rules by engaging with more banks to acquire their jumbo loans. Abate said the REIT had started conversations with more than 70 banks.  

“Over the past few months, we’ve completed onboarding and have already activated a number of regional and mid-sized banks with aggregate assets of over $2 trillion, and we’re in various stages of bringing many more online in the coming weeks and months,” Abate said.  

Before the onset of the regional bank crisis this past March, depositories originated two-thirds of all jumbo mortgages in the first quarter of 2023, Abate said. 

However, with so many changes in the market, including the Basel III proposed rules, Abate believes the future can be different. 

“We expect that through the benefit of hindsight, these regulatory changes will mark a major turning point in how most non-agency loans are owned and distributed in the United States.”

Flávia Furlan Nunes, a Mortgage Reporter at HousingWire, reported this story. Will Robinson, a Data Journalist at HousingWire, analyzed the data and created the visualizations. They can be reached at flavia@hwmedia.com and will@hwmedia.com.