There is a significant disconnect in the Jumbo mortgage between the primary market and the secondary market. Since the 2008 financial crisis the once-thriving and vibrant non-agency, Jumbo MBS market has evaporated. Despite some attempts to resuscitate the Jumbo secondary market the gulf between investor needs and what consumers want remains large. Most of us are familiar with the expression “the elephant in the room.” Wikipedia defines this expression “as an English metaphorical idiom for an obvious truth that is being ignored or goes unaddressed.” Wikipedia goes on to say “the idiomatic expression also applies to an obvious problem or risk no one wants to discuss.” The application of this expression perfectly describes the dysfunctional gap between the terms investors want and what originators representing consumers need.
Since the financial crisis destroyed the liquidity in the Jumbo secondary market little progress has been made to restoring order. The reasons are tied to the enormous amount of government subsidy lavished on the conforming market. And the conforming market has also impacted the jumbo market through significant increases in the historic loan limits for the GSEs in “high cost areas.” Many industry experts have estimated government insured or guaranteed mortgages represent 90% of the total current market.