Some larger banks have begun to more aggressively price their jumbo mortgage loans, but at least one credit union has decided not to be intimidated into leaving that market.
An executive with the 72,250-member, just over $1 billion Workers' Credit Union, headquartered in Fitchburg, Mass., said the credit union had noticed some area banks had dropped their rates on jumbo loans to match their rates for conventional loans, but had decided that it had the expertise and resources to compete.
Jumbo housing finance loans are those which exceed Fannie Mae and Freddie Mac's limits for loans that they will purchase for resale in the secondary market. For most of the country that means loans made for more than $417,000 are jumbo while loans made in some high-cost areas for more than $625,000 are considered jumbo.
Housing finance analysts have said banks have been lowering their rates on these larger loans in an attempt to attract wealthier borrowers and possible cross sell them other bank products and services, and Thomas Gray, senior vice president for lending at Workers', said that is what the credit union thought as well.
“We started noting that the banks started dropping their jumbo loan rates from, say, half a percent over their conventional loan rates down to their loan conventional rates or even a little below,” Gray said. “So I went to my CEO to decide about whether we wanted to compete with that and we decided we did.”
Gray said that Workers', which turns 100 years old in April of next year, is headquartered to the west of Boston and doesn't necessarily have a lot of branches in high real estate value areas.
But the credit union's field of membership effectively includes the whole state and part of New Hampshire and Gray said the credit union sought to serve all of its members.
“We have members who need personal loans of $500 from time to time,” he said, “but we have other members who want $50,000 CDs. We have to serve everybody.”
Gray said Workers' has been in conversation with some organizations that are looking to purchase jumbo loans, though in most cases they also want the servicing rights and Gray acknowledged Workers' was reluctant to sell those.
But he added the credit union had also found several different approaches to hedging its interest rate risks on fixed rate jumbo loans and has found member interest in adjustable rate loans increase as well.
“And those we have always kept on our books,” he noted.
Gray credited what he called the credit union's sophisticated approach to asset and liability management and the use of hedges for its ability to keep competing in the jumbo market and said that the credit union had been preparing for the shift from refinancing existing home finance loans to making new ones.
“We just hired two more loan originators to help us meet some demand in the Boston market,” Gray said. “We wanted to keep up our jumbo loan effort to give them some tools,” he added.