Bifurcation in Mortgage Loan Markets

 In early March and April when Covid-19 pandemic just started, mortgage markets sunk steeply. After that short period, there has been bifurcation in mortgage markets recovery between jumbo loans, i.e. larger than $510,400* and conforming mortgage loans. Before Covid-19, jumbo loans were viewed as less risky, as they were owned by wealthier customers (McCaffrey, 2020, July 27). That has changed in Covid-19 pandemic when Fed intervened.

Most banks and non-bank lenders heightened lending standards of jumbo loans, particularly required almost perfect credit scores and high downpayment of  even 35% of the principle (McLaughlin, 2020, June 25). As of June 16, 11.8% of jumbo loans were in forbearance, compared with 8.7% of all mortgages (Black Knight, 2020, July). Please see the table below.

Possible reason that jumbo loans, wealthy house owners, went delinquent higher than conforming loans can be found at the Care Act that government agencies stepped in for defaulted monthly payments of conforming loans. Federal Reserve decisively prevented mortgage market from a possible breakdown as Financial crisis in 2008 and bought unlimited amount of mortgage backed securities (Federal Reserve, 2020, March 23). This measure made conforming loans looking much safer to lenders, than jumbo loans that are not protected by the Care Act. A jumbo loan is too big for government-backed mortgages (McCaffrey, 2020, July 27).

The new strict standards for jumbo loans are one of many changes that Covid-19 brought to us. In addition, shown the graph below, there are high level of new loan originations in June 2020, higher than 2019, which means beyond recovery. Apparently, many people bought their houses (Black Knight, 2020, July).

With low interest rate until 2023, Jerome Powell promised today, September 16, in his FOMC statement, still, buying assets may be MBA finance investment textbook answers. Ideally, the assets must be smaller than jumbo loans. 



Cite as:

Rachel Kim (2020, September 19). Bifurcation in Mortgage Loan Markets, The Blue Ocean Management, Retrieved from:




*Note1: in the high living cost areas, jumbo loans must be larger than $765,600.


Black Knight, 2020, July, Black Knight’s Mortgage Monitor Report, Black Knight

Federal Reserve, 2020, March 23, Federal Reserve announces extensive new measures to support the economy, Federal Reserve.Gov

McLaughlin, 2020, June 25, The Jumbo Market Shows Signs of Heating Up, Wall Street

McCaffrey, 2020, July 27, Jumbo Mortgage Rates Are No Longer the Cheapest Around, Wall Street