JP Morgan Chase is the most recent bank to adjust its standards for issuing jumbo loans for primary residences and second-homes, according to CNN Money.
Jumbo loans are typically for homes valued at $417,000 or more, but can be as much as $625,500 or $729,750, depending on the county in which the loan is originated, according to the Credit Union Times. This is because loans of up to $417,000, called conforming mortgages, are generally backed by government agencies, according to the Wall Street Journal. Jumbo loans, which exceed the amount government agencies are willing to back, are usually held by the lender or sold to an investor.
Chase previously required borrowers to have a credit score of 740 and make a down payment of 20 percent for primary-residence homes, CNN Money reported. Now, the credit score can be as low as 680 and the required down payment on a loan of up to $3 million is only 15 percent.
For secondary homes, Chase is now requiring a credit score of 680 and a down payment of 20 percent, rather than 30 to 50 percent.
Lowering the Bar
Chase isn't the first bank to begin lowering standards for jumbo loans. Wells Fargo began doing this last summer after Federal Reserve Chair Janet Yellen suggested that fewer restrictions on jumbo loans could help the housing market grow, according to MarketWatch.
"I think banks at this point are reluctant to lend to borrowers with lower [credit] scores," said Yellen during a press conference in June 2014. "It is difficult for any homeowner who doesn't have pristine credit these days to get a mortgage. I think that is one of the factors that is causing the housing recovery to be slow."
Six months prior to Wells Fargo's lowered standards for jumbo loans, the bank began to make it easier for borrowers to get loans by requiring a minimum credit score of 600, rather than 640, if they were eligible for insurance through the Federal Housing Administration. As Reuters reported, Wells Fargo wasn't alone — 39 percent of large banks said they were beginning to lower standards on residential mortgages.
According to Bankrate.com, Fannie Mae also lowered standards for buying mortgages of less than $417,000. The minimum credit score was 620 and down payments could be made with as little as 3 percent.
Credit unions joined the trend, too, by beginning to offer jumbo loans. Credit Union Times reported that Ellie Mae data showed 23 credit unions in California had issued 65 or more jumbo loans in July.
According to the Wall Street Journal, the second quarter of July saw more than $93 billion in jumbo loans — 33 percent more than the first quarter.
Housing Market Affects Loans
Many financial institutions saw a decrease in the number of customers and members taking out mortgages since the Great Recession. The housing market has begun to pick back up, according the National Association of Realtors. Banks have also experienced greater demand for mortgages, Reuters reported.
Tim Owens, the head of Bank of America's retail sales group, told the Wall Street Journal that rising home prices are driving homebuyers to look into jumbo loans.
In addition to the changes in standards for jumbo loans, Chase also rewrote its guidelines for borrowers seeking loans for their primary or second homes, according to a press release from the bank.
"We want to make sure homebuyers can easily understand the benefits of financing with Chase," Chase's Head of Mortgage Loan Originations Steve Hemperly said in the release.
This is all good news for those hoping to buy a home soon: Many are likely to have an easier time finding a mortgage loan, whether it's jumbo or not.