An article published by the Wall Street Journal (subscription required) on June 1, 2016 highlights a post-housing crisis trend towards jumbo mortgages within the mortgage market. The authors note that jumbo mortgages – home loans for amounts above $417,000 for most markets – allow lenders to satisfy one post-crisis mandate to take fewer risks within their portfolios, however, an increase in the share of jumbo loans can raise lenders’ exposure to compliance risk under Fair Lending laws and the Community Reinvestment Act (CRA).
Historically, jumbo loans have been concentrated among white, non-Hispanic and Asian applicants. Prohibited basis groups, such as African Americans or Hispanic/Latino applicants, have had a lower incidence of applying for and receiving jumbo mortgages. For some lenders, the combination of these group lending patterns and growth in jumbo mortgages will lead to a declining share of applications from prohibited basis groups and from geographies with high concentrations of minorities and low-income families.
With the heightened focus on redlining and the role that CRA plays in bank mergers and acquisitions, lenders that have observed a growing trend towards jumbo mortgages within their portfolios should analyze the effect on their lending patterns to prohibited basis groups and high minority/low-income geographies.