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TheStreet Open House

Banks to Profit Off Jumbos: Moody's

NEW YORK (TheStreet) -- Several banks are likely to profit from funding jumbo mortgage loans as the government sponsored enterprises (GSEs) start to retreat from the marketplace, according to Moody's (MCO) report.

The largest jumbo loan producers are Wells Fargo (WFC), with $14.45 billion in jumbo loans, Bank of America (BAC) Home Loans with $12.43 billion in jumbo loans, JPMorgan Chase (JPM) with $10.2 billion, PHH Mortgage (PHH) with $8.52 billion, ING Bank (ING) with $6.9 billion and Citigroup (C) with $6.70 billion. SunTrust Mortgage (STI), US Bank Home Mortgage (USB), Astoria Federal Savings (AF) and Hudson City (HCBK) were also ranked as large jumbo loan lenders on Moody's list likely to make a profit.

"Banks with room on their balance sheets to hold higher balance loans in portfolio will pick up market share from loan originators that depend on selling the loans they originate to the government agencies," Moody's analyst Thuy Nguyen and senior vice president Brian Harris.

Banks originated $87 billion in jumbo loans in 2010, while Fannie Mae (FNM), Freddie Mac (FRE) and Federal Housing Administrationbought $93 billion in jumbo loan mortgages. In September the GSEs conforming loan limits will decline, making it easier for banks to enter the market and profit off of the mortgages.

"We estimate banks will have to fund only an additional $28 billion of jumbo loan a volume after the GSE and FHA's conforming loan limits decline," the analysts said in the report. "The allocation of $28 billion in additional jumbo mortgage volume means a 32 percent increase in each bank's jumbo mortgage portfolio."

Banks won't be the only ones looking to enter the jumbo loan market more aggressively. Private equity funds, REITs and hedge funds are also looking to yield more returns from the jumbo mortgage sector.

"We look forward to the potential roll-back at the end of September 2011 of the temporary increase in the conforming loan limits applicable to Fannie Mae and Freddie Mac, which would increase the share of the mortgage market for the private sector and reduce future risk to taxpayers, " said Martin Hughes, president of California-based REIT Redwood Trust said to The Street in a previous article. --Written by Maria Woehr in New York.

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