The P.A.

A weekly address from Patrick Adams,
President of St. Louis Community Credit Union

Make Small-Dollar Mortgages

On July 18th, 2016, posted in: Uncategorized by

Modest HomeYou know what jumbo shrimp are. A great oxymoron for sure. Jumbo shrimp are just that – big ol’ shrimp. Likewise, it seems to me that 7-Eleven® is known for Big Gulps, which started out as big and have found their way to the upgrade of jumbo. Jumbo anything is big, but jumbo gulps means a heck of a lot of fluids. Jumbo Ozaki was a professional golfer from somewhere across the Pacific if memory serves me correctly. You guessed it – he was not known for his diminutive stature.

Jumbo mortgages are just that too – big ol’ mortgage loans that have become a very attractive place for banks to focus their lending. The six largest banks in the country have really focused in on these high-dollar home loans to the degree that 1 in 4, i.e. 25%, fall into the category of jumbo. These mortgages are for the affluent and usually for a minimum of $417,000.

Bankers are astute business people. They have a responsibility to make a profit for their shareholders. It’s their structure and they know where their bread is buttered. Add to their basic corporate structure and their need for profit, the need to optimize their earnings and you find that to make jumbo loans vs. investments (because of ridiculously low rates for almost a decade) is the best possible solution. Trust me, they are going to make as many loans as they can. If a home loan for $85,000 costs the same to originate as the one for $417,000 (before risk), then they are prudent in their choice to meet the needs of their fiduciary responsibility to their shareholders. Banks aren’t to blame.

Circumstances are such that the unintended consequence of punitive regulation, low rates, and an abundance of money to lend has cut low-to-moderate income consumers out of the chance for a mortgage. It’s a perfect storm of sorts. Who gets hurt by low rates, lots of money to lend and regulation? The hardworking people that you and I know who are paying way too much in rent, yet can’t catch a break on getting a mortgage loan for a new home in order to build wealth.

Jumbo mortgages are attractive because the borrower has great credit, big down payments and low default rates. Also, jumbo loans aren’t linked to the litigation and fines that banks have paid in recent years because of their dealings (in part) with government programs.

We make small-dollar mortgages every day, but others need to as well. Loosen up regulation and raise rates and more loans will be made to folks with imperfect credit that need a lift-me-up.

The Consumer Financial Protection Bureau (CFPB) and the Federal Reserve are culpable parties. To blame the bank is too easy and not fair.

No Responses to “Make Small-Dollar Mortgages”

Leave a Reply