WSJ: Banks and Investors Face ‘Jumbo’ Threat. It turns out that the default rate is shooting up in a part of the mortgage market that was considered safe: affluent homeowners with prime jumbo loans. The culprit: layoffs.
That means trouble for banks that made those loans when times were good and investors who snapped up jumbo loans packaged into mortgage-backed securities. Defaults on jumbo mortgages tend to result in especially steep losses for lenders, because pricier homes are tough to sell in the current market.
“There is more pain to come,” says Herb Blecher, vice president of analytics at LPS.