Super Jumbo mortgages are made available to borrowers whose

What are risks of Super Jumbo Mortgages?

Super Jumbo Mortgages present an increased risk to the Lender in direct correlation with the size of the loan, substantially more than conforming mortgages.

The increased risk of Super Jumbo mortgages is firstly due to the lack of "agency" support for these loans, effectively reducing the available pool of investors and insurers for all jumbo mortgages by an order of magnitude.

Mortgages in excess of 1 million dollars have an even smaller secondary market of investors, and super jumbo mortgages in excess of 2 million dollars frequently require extensive "sourcing" of private investors prior to funding due to very minimal institutional investor coverage.

The complex nature of funding these loans requires the use of Super Jumbo mortgage specialists, whose compensation requirements are generally too prohibitive for retail banks and mass market lenders to accommodate outside of niche geographic areas, leaving much of the business to private concerns.

Securitization of Super Jumbo mortgages has not met with the same success as conventional jumbo mortgages, although work in this area is ongoing throughout the financial community. The underlying lack of liquidity for Super Jumbo Mortgage securities is compounded by a reduction in lending capacity for the institutions which must service these larger loans; as they lack a ready market for secondary sale the loans remain "on the books" of the Lender, tying up Capital in Servicing that would otherwise be invested again.

The assets against which super jumbo mortgages are secured are primarily classified as "luxury" residential real Estate, a segment which is highly prone to market volatility in gross dollar terms. Luxury homes also require substantially more time to market in the event of Foreclosure.

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What are Mitigants of Super Jumbo Mortgages?

In response to the multiple layered risk of writing Super Jumbo mortgages, lenders utilize a few common mitigants in super jumbo mortgage Underwriting to reduce their downside exposure. Key Super Jumbo mortgage mitigants include:

Super Jumbo Mortgages Loan To Value LTV

Borrowers can expect significantly lower Loan To Value or "LTV" limits on Super Jumbo mortgages, particularly above and beyond $1,500,000. Typical Super Jumbo mortgage LTV maximums range from 80% to as low as 50% depending on Loan amount and Credit scoring. While 100% or "No Money Down" financing was available up to $2,000,000 until February of 2007 from several of the leading Super Jumbo Mortgage Lenders, as of this writing none are currently able to fund LTV ratios higher than 85% for loans in excess of $1,500,000, regardless of Credit Scoring.

Super Jumbo Mortgages Credit Scoring

credit score requirements for Super Jumbo Mortgages have become increasingly relaxed since 2002, however credit score standards are still somewhat more stringent for Super Jumbo borrowers than they are for their conforming counterparts. The biggest difference for Super Jumbo mortgage borrowers is the lack of subprime Super Jumbo mortgage programs, meaning that for borrowers with credit scores below 620 who are seeking a Super Jumbo mortgage Refinance, the only option may be "Super Jumbo Hard Money" lenders, a category of private lending catering specifically to the needs of high Net worth individuals with temporarily blemished credit scores, Bankruptcy issues, or Foreclosure problems. 

Super Jumbo Mortgages Loan Purpose Guidelines

Generally Speaking, lenders will allow borrowers to Refinance or purchase a home utilizing a Super Jumbo mortgage, however refinance guidelines for these loans generally require lower LTVs than purchase money.

Borrowers wishing to "Cash Out" in a Super Jumbo mortgage refinance can expect limits not only to LTV but also to gross cash proceeds from the transaction. Cash Out Refinancing is a very popular use of Super Jumbo mortgages, as it allows individuals to "take profits" from appreciated Real Estate with minimal tax consequences. Some lenders do allow for unlimited cash out on Super Jumbo mortgage refinance transactions, however their number is declining in step with the broader mortgage markets.

Super Jumbo Mortgages Interest Rate

While Interest Rates are rarely the focal Point of a typical Super Jumbo mortgage Borrower's shopping list (most focus on cash flow and tax benefits), lenders routinely charge higher interest rates on super jumbo mortgage products than they would for a Borrower with similar qualifying criteria in a conventional jumbo loan, in large part to account for their risk and reduction of liquidity. Below $1,000,000, super jumbo mortgage rates are generally within 50 basis Points (half of a percent) of an equivalent jumbo mortgage Interest Rate, however above $2,000,000 rates can be 1% to 2% higher or more.

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Super Jumbo Mortgages Multiple Appraisals & Reviews

Due to the difficulty of setting market values for luxury homes, it is not unusual for super jumbo mortgage lenders to require 2 full appraisals at a minimum for properties valued at $1,500,000 or more.

Should the subject property be unique, or comparable sales be difficult to obtain for the purpose of deriving value, additional field review appraisals, desk review appraisals, and Broker price opinions may be ordered to substantiate the property's value. This is a significant concern for the lender as the Asset in which they are taking a Security interest must have a reasonable value to justify their risk and associated premiums.

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