Two credit unions currentlyoffering jumbo mortgage loans said they will still provide them,despite large banks in their markets beginning to aggressivelyprice similar offerings.

Jumbo loans exceed the value of loans that can be sold to FannieMae or Freddie Mac. In most of the U.S., that defines the loans asthose larger than $417,000, though in some higher-priced areas, thecap is $625,000.

National and regional banks have begun to price jumbo mortgageswith lower interest rates than conforming loans, in part to attracthigh-income customers, but also for other reasons, according to anexecutive with a leading housing finance analytical firm.

“I agree that some banks have begun to look for higher wealthborrowers who could take one of these mortgages,” said KeithGumbinger, vice president at HSH.com, a housing finance analysisand information site. “But they are doing so for a variety ofreasons.”

Gumbinger explained that the current low interest rateenvironment suggests that loans taken out now are not likely to berefinanced quickly, which means wealthy borrowers could remain withtheir lending institutions longer.

“There is a potentially significantly longer time frame to offerwealthier customers additional products and services,” Gumbingersaid. “Banks can offer investment services, other loan products orother kinds of services.”

Wealthy borrowers may also have an easier time meeting theregulatory requirements that prove they have the ability to repaythese larger loans, he observed. Elements like larger downpayments, smaller debt loads and larger asset pools tend to makejumbo loans, at least on paper, more secure, Gumbinger said.

Finally, banks also realize that there are limited numbers ofthese borrowers around, he explained.

“Not only are there not a whole lot of the borrowers who couldtake out a jumbo mortgage and repay it,” Gumbinger said, “they arealso not found everywhere. There are only a limited number ofgeographic and primarily urban areas where you will find both theproperty prices to require these loans, as well as the people whocould make their payments. So there is a lot of competition forthose borrowers.”

One of those markets is Boston. That's why the 72,250-member, $1billion Workers' Credit Union, headquartered in Fitchburg, Mass.,decided to compete for jumbo business.

Next Page: Watching the Banks

Thomas Gray, senior vice president for lending, said the creditunion had noticed some area banks dropped their rates on jumboloans to match their rates for conventional loans. The credit unionalso decided it had the expertise and resources to compete.

“We started noting that the banks started dropping their jumboloan rates from, say, half a percent over their conventional loanrates down to their loan conventional rates or even a littlebelow,” Gray said. “So I went to my CEO about whether we wanted tocompete with that, and we decided we did.”

Gray said that Workers', which celebrates its 100th anniversaryin April of next year, is ­headquartered west of Boston and doesn'tnecessarily have a lot of branches in high real estate value areas.But the credit union's field of membership effectively includes theentire state of Massachusetts and part of New Hampshire, and Graysaid the credit union sought to serve all of its members.

“We have members who need personal loans of $500 from time totime,” he said, “but we have other members who want $50,000 CDs. Wehave to serve everybody,” he added, and that includes the high-costBoston market.

“We just hired two more loan originators to help us meet somedemand in the Boston market,” Gray said. “We wanted to keep up ourjumbo loan effort to give them some tools.”

But another credit union, the 231,000-member, $3.8 billion EntFederal Credit Union, based on Colorado Springs, Colo., came to adifferent conclusion.

Faced with similar national and regional bank moves into thejumbo mortgage market, the credit union decided not to cut its rateto match the bank rates. However, it is still offering theloans.

“We chose not to cut our rates because we determined loans ofthat size do carry additional risk,” said Jon Paukovitch, vicepresident for mortgage lending. Paukovitch said the credit unionalso made a determination that relatively few of its members weregoing to be in the market for jumbo mortgages.

“You get a lot of house in Colorado Springs for $417,000,”Paukovitch explained. “We just didn't get a sense that there were alot of our members who were really in that market.”

But at the same time, Paukovitch said Ent was willing to workwith a member who might want one of the loans and was being offereda better rate elsewhere.

“We will continue to work with long term members, of course,”Paukovitch said, “because we want to keep them as members. But wedidn't see the need to change policy on the loans overall.”

Of course, one additional dimension to the loans is the factthat Fannie Mae and Freddie Mac will not buy them. This means thatboth Workers' and Ent have strategies in place for handling theloans on their balance sheet.

Gray said Workers' has spoken with some organizations thatpurchase jumbo loans. However, in most cases they also want theservicing rights, and Gray said Workers' was reluctant to sellthose. But he added the credit union had also found severaldifferent approaches to hedging its interest rate risks on fixedrate jumbo loans, and has found member interest in adjustable rateloans increasing as well.

“And those we have always kept on our books,” he said.

Gray credited the credit union's sophisticated approach to assetand liability management and the use of hedges for its ability tokeep competing in the jumbo market. He also said the credit unionhad been preparing for the shift from refinancing to purchase mortgages.

Ent also uses a variety of approaches to hedge risk in itslarger fixed rate loans, Paukovitch said.