Who wins as Jamie Dimon squashes First Republic jumbo mortgage specialty?


Not everyone cares about jumbo mortgages above the $726,200 limit that are backed by Fannie Mae and Freddie Mac. But these loans are critical to borrowers and lifeblood for loan officers and realtors in high-priced real estate markets. And First Republic jumbo mortgage leadership is key to this.

Until now. Because after JPMorgan Chase bought First Republic out of FDIC receivership yesterday, Jamie Dimon was clear he doesn’t want too many jumbo mortgages on his $3.7 trillion balance sheet.

Here what he told Wall Street analysts yesterday about squashing First Republic jumbo mortgage strategy going forward:

I’m not a fan of putting mortgages on the balance sheet. And these are pristine loans. So keep that in mind. And largely high net-worth jumbo, high net worth loans. The loans themselves are credit — really credit worthy and being marked. They’re obviously going to have a much higher return going forward. But we’re not going to be putting a lot of jumbo, cheap jumbo mortgage loans in our books. And we’ve already incorporated all of our numbers into potential runoff. And First Republic did a great job and service, have been in the low cost lending businesses, that’s not [what] JPMorgan does.

This will take out a key player in the jumbo mortgage space in America.

Managers at nonbanks in high priced markets will tell their loan officers that this is an opportunity for them because a key bank competitor is out of play.

But this isn’t true.

The last time nonbank lenders were truly competitive in jumbo mortgage was before the 2008 crisis when there was a legit secondary market for jumbo.

With a robust secondary market, nonbank lenders had plenty of takeouts for jumbo, so their pricing was as competitive as balance sheet lenders.

Ever since, sophisticated borrowers and realtors generally turn to balance sheet lenders for jumbo mortgages.

Balance sheet lenders don’t have a secondary market spread on jumbos so they can price them better.

They do this even if margins on these deals are slim because they want the wealthier clients to sell other products to.

This was a formula First Republic mastered, and it was envied by other banks who want high-end customers.

But now First Republic as a bank and a brand are gone — reminder below that Dimon said to media and Wall Street yesterday that the brand is going away.

Jamie Dimon confirms he won't keep First Republic brand - The Basis Point

This means that other banks have an opportunity to step in on jumbo mortgages.

I don’t see regional banks going too deep into filling First Republic jumbo mortgage shoes until the Fed eventually reverses rate hikes.

Why? Because higher short-term rates means depositor costs are higher, and jumbo mortgage loans on balance sheet are even less profitable.

Therefore the jumbo void will have to be filled by other big banks that don’t share Dimon’s “not a fan of putting mortgages on the balance sheet” philosophy.

Wells Fargo has been good at jumbo mortgages in high priced markets for a long time.

Bank of America and Citigroup are also quiet but strong jumbo mortgage contenders in high priced markets.

And finally, U.S. Bank has been making a major play for high-priced market loan officers lately.

As such, they’ll certainly have the opportunity to take jumbo mortgage market share if they want to.

They have the balance sheet and the salesforce for it.

The question is whether they’ll take the same stance as Dimon.

As for nonbank lenders, they rely on bigger banks to buy the jumbo mortgages they originate.

Nonbank jumbo originators have faced harsh jumbo product setbacks recently.

First, Wells Fargo stopped buying mortgage originations from nonbank lenders in Janauary. This hit jumbo nonbank originators hard.

Second, U.S. Bank bought Union Bank — a leading provider of competitive jumbo loans to mortgage brokers — then shut down this division in December.

In addition to squashing First Republic’s jumbo playbook, if JPMorgan ends their buying of jumbo mortgages from nonbanks like Wells Fargo did, it’ll further hit jumbo nonbank originators.

So, now all eyes are on the bigger balance sheet banks noted above to see if they want to play in jumbo mortgages.

And here are 3 strategy questions to ponder about the future of jumbo mortgages:

Notice Dimon’s exact language: “I’m not a fan of putting mortgages on the balance sheet.

For now, this means First Republic’s jumbo lending model won’t survive inside JPMorgan.

1. But what if Dimon’s signaling here leads to a rebuilding of the non-agency mortgage backed securities market?

2. If most/all banks stopped retaining jumbos on balance sheet, would that bring a jumbo secondary market back?

3. And if a jumbo secondary market came back, would we finally get bank/nonbank price parity in jumbo mortgages again?

To all you jumbo lenders, realtors, and borrowers in high-priced markets: please comment or reach out with your thoughts.


What JPMorgan, FDIC, customers get in First Republic seizure. Dimon to ditch failed brand.

What’s up with Wells Fargo exiting their position as America’s top mortgage servicer and third largest originator?

Key stats & quotes from 1Q23 JPM, Wells, Citi earnings

– More mortgage and banking stories on The Basis Point




Comments [ 4 ]
  1. AQ says:

    pesky COF making this tough for banks who lack duration talent and also struggle to cross-sell

    1. Indeed. Banking is harder than it looks as we’ve been reminded again this year. Still, First Republic deserves credit for cross sell. They were among the best in this area.

  2. Roberto Cabrera says:

    The market for larger loans ($10M-ish) was overwhelmingly challenging in March and April. Could not find a competitive price anywhere and buyer simply closed with cash. According to Jonathan Miller of Miller Samuel, the percentage of cash deals in Manhhattan has increased from approx 39% to nearly 60%. I anticipate the demand for those jumbos (at fair pricing) will cause a solution.

    1. Thx for the deal intel Roberto and the latest from Jonathan — he’s the best! And I hope you’re right about a solution. The chatter is that ‘jumbos don’t pencil’ but banks getting those customers obv pencils eventually.

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