Context. A-paper jumbo cash out refinances typically go to 65% or 70% LTV, maybe 75%. 80% is rare.
More context. You owe $400k for your $1,000,000 home. A 65% LTV cash out refi means you get a new loan of $650k, pay off the $400k, and put $250k minus closing costs into your pocket. This is not a taxable event. That’s cash out refi 101. The 65% LTV means they forced you to leave 35% equity in the home. For federally backed loans, 80% is the typical cap, with significant pricing (pricing = rate/fee combination) hits to offset that risk. For A-paper and A-grade pricing jumbo loans, which are purely private sector with no federal subsidy, 75% is about the top you can generally expect.
The reason for those caps is that homes could go down in value. Let’s say you are a bank and cap your cash outs at 70% loan-to-value. You force everyone to leave at least 30% equity in their homes. Suppose something happens causing real estate to drop 20%… whelp, your borrowers still have 10% equity, so they aren’t likely to walk away and just stop paying. At the very least, they would sell the thing and walk away with that $100,000 cash. Suppose it goes the other direction and real estate goes up, that 70% LTV cash out refi just became a 60% or 50% LTV cash out refi, this is of course perfectly fine for you, your position is safer.
OK, so with that context. As part of the UWM-RKT Cold War that turned into a Shooting War on March 4, 2021, UWM has unleashed 89.99% LTV Jumbo. That existed before the pandemic, you could get a jumbo loan with 10% down, no PMI, slightly bumped rate (no PMI + slightly bumped rate = a wash), and buy a home that way.
Here is a news article, I already included the back door around the paywall in the link: https://archive.fo/zgNbA
What isn’t in that article, and what seems to be flying under everyone’s radar: they are sticking to that 89.99% LTV for cash out refinances too. You don’t have to leave 25% or 35% equity in the home, 10% will do. Before the “omg 2008 all over again” robots start reciting their narrative (said bots have been on auto-pilot since about 2013, for those just now arriving to the conversation): 740 FICO minimum, full doc, dead sexy borrowers only.
Here is my reading of that. No one actually wants to hold onto 90% LTV cash out paper, period. It’s just too risky. But if you’re incredibly confident that real estate, luxury real estate in particular, is set to appreciate by significant amounts, then pretty soon it’s not going to be 90% LTV. It’s going to be 75% or 65%, the comfort zone and buffer you want. That is the billion dollar bet being placed. The CEO of that lender is on my facebook feed, he said that yesterday, when that new program came out, they had $700,000,000 worth of new volume registered. In a day. Loan originators posted stuff like: “2020 jumbo loans: 4. St Patty’s day 2021 single-day registered jumbo loans: 24.”
And so, seeing that, what I expected was to come into the office today and see that they’ve pulled back on pricing, jacked up the rates, cut it off, realized they bit off too much, deterred business, that sort of thing. …Nope. They doubled down. They’re hungry for it, they want it, and it’s a company led by a silver spoon kid who inherited 14 employees (his dad, a Detroit area lawyer, had started a small mortgage shop as a side hustle… he gave it to the one kid of his dumb and stupid enough to want to get into the mortgage biz) and now has over 8,000 employees, he’s a billionaire many times over, so he’s no dummy even if he did get that silver spoon. And that’s where he is placing his bets.