Fewer litigation charges, effective cost-control measures and modest progress in core business lines helped the banking behemoths report better-than-expected results this earnings season. Gradually moving away from the endless post financial crisis regulatory issues, these major banks are now shifting their focus on loan growth by boosting mortgage originations.
Following on the footsteps of banks such as Bank of America Corporation BAC and Wells Fargo & Company WFC, JPMorgan Chase & Co. JPM is planning to relax the prerequisites for “jumbo” mortgages. As reported by the Wall Street Journal, JPMorgan intends to slacken terms for mortgages of up to $3 million.
The idea is to combat the heightening competition and seize the top share of the upper end of the housing market. While jumbo mortgages (loans of at least $417,000 in most areas) are both riskier to the bank as well as harder to sell to borrowers, these involve less regulatory costs and litigation risks compared to smaller loans, thus making it attractive to banks.
By easing the underwriting rules as well as reducing down payments and credit scores associated with jumbo loans, JPMorgan looks forward to capitalize on the enhanced higher-priced homes segment within the stabilizing housing market.
Revised Terms
JPMorgan is expected to reduce the minimum required FICO credit scores to 680 from 740 for mortgages provided for primary single-family purchases, second homes and certain refinances on those properties.
Also, the bank will start accepting a 15% down payment (down from 20%) for loans up to $3 million as against a 15% down payment allowed by Bank of America for loans of around $1 million and a 15% down payment permitted by The PNC Financial Services Group, Inc. PNC for originations of around $1.5 million.
The lowered down payment criteria will be applicable on the purchase price for single-family homes serving as the borrower’s primary residence. Also, down payments will be reduced for jumbo mortgages on second homes, such as vacation homes and certain two-to-four unit properties.
Our Take
While the recent housing data indicates a healthy rate of growth, the banks have narrowed their focus on the pricier markets within the housing sector, which have shown improvement at a much faster pace. Sales of homes priced between $100,000 and $250,000 increased 12.5% in June, while those priced lower fell 3% compared to the prior year, according to the National Association of Realtors.
Thus, rapid recovery of the upper end segment of the housing market, rising home values and more flexibility in jumbo originations have resulted in lender banks such as JPMorgan charge lower rates and relax mortgage terms to retain and attract wealthier borrowers.
Currently JPMorgan carries a Zacks Rank #3 (Hold).
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