More Proof of Jumbo Life

There are those in the housing reform debate that argue we need the government to support cheap mortgages because no financing would exist for homes without it. The fact that we had a strong jumbo market for decades should prove this point false on the spot. Those private market doubters would respond, but in the current market there is no private capital. But jumbo loans have been present every step of the away in the collapse into today’s housing mess. And their rates have fallen along with conforming loans. In fact you can get jumbo, 30-year fixed-rate mortgages today for less than conforming loans in the 90s.

The Thomases would not be done doubting, though, arguing that securitization—being important to channeling investor funds into housing—is weak in the jumbo market. And this is not completely false. But jumbo is coming back. And today’s announcement is the proof. According to American Banker:

Redwood Trust on Tuesday filed notice with the Securities and Exchange Commission, signaling its intention to sell a $292 million mortgage-backed security backed by jumbo mortgages.

The deal marks Redwood’s second jumbo MBS deal within 10 months. The publicly traded firm has been the only issuer of such product since financial markets imploded in the fall of 2008, though rumors have surfaced that a new, small private jumbo bond recently changed hands.

Note that this is the second deal. Here’s why: many scoffed at the first Redwood deal as being a loner with little legitimacy that jumbo is coming back. But here is the kicker, more people wanted in on the deal than could be accomdated. The AB story continues:

Its first jumbo deal – which was oversubscribed – was comprised mostly of loans originated by Citigroup. This time around it’s unclear which lenders have been upstreaming product to the Mill Valley, Calif.-based firm.

So is this the rock solid proof to wipe away all doubters? Unlikely. I’m sure some will write it off as relatively small, given the $10.6 trillion size of the mortgage industry. But it is still a step. Still a green shoot. And still reason to believe that there can be vibrant jumbo market to support mortgage finance without the government needing to subsidize housing.