Wednesday, December 27, 2017

"Could tax reform kill the jumbo mortgage market?"

Here's one of the larger maker and packagers of jumbos, Redwood Trust:

RWT Redwood Trust, Inc. daily Stock Chart
It seems to have foretold something.

From The Real Deal:

New rules could dampen the market for big resi loans
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....MORE