Lenders focusing on jumbo loans as total originations decline

Jumbo loans are accounting for a larger share of mortgage originations.

The results of weekly surveys conducted by the Mortgage Bankers Association show that the volume of mortgage applications has been on the decline in June after a series of modest increases in May. Applications briefly surged by more than 10 percent in the week following Memorial Day, although those gains were largely erased by a 9 percent decrease during the week of June 18.

However, not all mortgages are trending in the same direction and size appears to be a key factor these days. According to MarketWatch, applications for so-called jumbo mortgages, those too large to be guaranteed by Fannie Mae or Freddie Mac, are remaining steady. Purchase applications for loans between $417,000 and $625,000 reportedly experienced a year-over-year increase of 2.5 percent in May. In contrast, applications for mortgages under $150,000 dropped by almost 19 percent over the same period.

Why is interest in jumbo mortgages stronger than demand for conforming loans?

In a recent article, Inside Mortgage Finance publisher Guy Cecala explained that there is "more competition, more affordable rates and the most flexible underwriting" in the jumbo loan sphere. "Arguably, this is one of the best times in history to be shopping for a jumbo mortgage," he wrote.

As a result of sluggish sales, there may be fewer opportunities available in the mortgage servicing market in the near future. Furthermore, with each loan potentially accounting for a higher portion of a company's total business due to an increase in jumbo originations, servicers will need to ensure that they are effectively managing payment processes and customer relationships to make the most of each transaction. In this environment, having the right loan servicing software in place is essential.