For the past few months rumors have circulated in the mortgage industry about a hedge fund or investment bank working on a plan to enter the jumbo securitization market. Now, we finally have a name.
PrinceRidge Group, a broker-dealer in New York founded last year by veterans of UBS AG, is in the laboratory, working on a plan either to issue bonds backed by newly originated jumbo loans or to hold them in a special investment fund.
The need, to say the least, is there. Before the credit crisis, jumbo loans were actively securitized, and the rates offered to consumers were on par with those charged for Fannie Mae and Freddie Mac loans. Today, with no secondary market available for any loan above the Fannie-Freddie cap of $729,750, credit for jumbo customers is tight, even nonexistent in some areas.
The market appears to be dominated by the nation's megabanks: Bank of America Corp., Wells Fargo & Co. and JPMorgan Chase & Co., with certain regional banks willing to fund jumbos for their "high-net-worth" customers.
Because the loans cannot be sold into the secondary market, they remain on the originators' balance sheets.
As for underwriting standards, the guidelines on these products can be drum-tight — most originators require at least 20% down and 12 months of mortgage payments set aside in a separate account.
Kimberly Brown, who is heading the jumbo effort for PrinceRidge, was not keen to talk about it, but certain mortgage officials are familiar with the program, having been briefed on it. As things stand now, PrinceRidge hopes to have a program in place in 90 to 120 days, according to an adviser who did not want his name disclosed.
"They're looking to do a couple of hundred million a month," he said, "and if all goes well, they'll ramp it up from there."