Prospect Mortgage said it has started offering prime Jumbo loans with balances of up to $2 million. It plans to sell these loans to firms aiming to tap the private-label MBS market.

“Although Congress has extended the GSE’s upper-end conforming limit of $729,750 until Sept. 30 of this year, that ceiling is only available for a limited number of high-cost areas,” said Ron Bergum, Prospect’s CEO. “We are focused on producing fully documented prime loans through well-qualified buyers who need Jumbo mortgages in markets with a $417,000 conforming limit, and then offering those loans to investment firms that are first movers back into jumbo securitization.”

The prime Jumbos being offered by Prospect are 30-year, fixed-rate and adjustable-rate mortgages with minimum credit scores of 700 and a 20% down payment for balances up to $1 million, and a 30% down payment and two appraisals for loans between $1 million and $2 million.

Since the market for private-label MBS collapsed in late 2007, nearly all MBS currently offered are those backed by Fannie Mae and Freddie Mac.

However, the mortgage lender said that a growing demand from Wall Street and investors for Jumbo mortgage issues has signaled an emerging opportunity that is gathering momentum. This signals a turning point for improved liquidity and reducing the market’s reliance on government backing to cover mortgage default risks.

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