Non-agency RMBS / non-QM / investor-purpose
Prime jumbo
status: draft
Prime jumbo
Prime jumbo loans are high-balance mortgages exceeding conforming loan limits with prime borrower profiles. These loans would be agency-eligible if not for the loan amount. The borrowers are typically high-income, high-FICO with substantial equity, making prime jumbo the lowest-risk segment of non-agency RMBS.
Product definition
Conforming limits (2024)
| Area | Conforming Limit | High-Cost Limit |
|---|---|---|
| Most US markets | $766,550 | N/A |
| High-cost areas | $766,550 | $1,149,825 |
| Alaska, Hawaii, Guam, USVI | $1,149,825 | $1,149,825 |
Prime jumbo starts above these limits. A $900,000 loan in a standard market is jumbo. A $900,000 loan in San Francisco (high-cost area) is conforming.
Credit profile
| Characteristic | Prime Jumbo Standard | Super Prime Jumbo |
|---|---|---|
| FICO | 700-760 | 760+ |
| LTV | 70-80% | 60-75% |
| DTI | 40-45% | Under 40% |
| Documentation | Full doc (W-2, tax returns) | Full doc |
| Reserves | 6-12 months | 12+ months |
| Property | Primary residence, second home | Primary residence |
Why this matters: Prime jumbo borrowers have agency-quality credit profiles. The only reason they’re in non-agency is loan size. This creates a relatively predictable collateral pool with performance approaching conforming levels.
status: draft
Performance benchmarks
Comparison to conforming
| Metric | Prime Jumbo | Conforming (Agency) |
|---|---|---|
| CDR (annualized) | 0.3-1.0% | 0.2-0.8% |
| 60+ DPD | 0.5-1.5% | 0.4-1.2% |
| CPR (annualized) | 20-45% | 15-35% |
| Loss Severity | 15-25% | 18-28% |
| CNL (lifetime) | 0.5-1.5% | 0.3-1.0% |
Why jumbo outperforms on severity: Larger loan balances correlate with higher-value properties in stronger markets. Foreclosure recoveries benefit from property appreciation in coastal metros where jumbo concentrations are highest.
Why jumbo CPR runs higher: Affluent borrowers are more rate-sensitive and have easier access to refinancing. When rates drop, jumbo borrowers refinance quickly.
Vintage performance
| Origination Year | 12-Month CDR | 24-Month CDR | Peak 60+ DPD |
|---|---|---|---|
| 2019 | 0.3% | 0.6% | 1.2% |
| 2020 | 0.2% | 0.4% | 0.8% |
| 2021 | 0.2% | 0.5% | 0.9% |
| 2022 | 0.4% | 0.9% | 1.4% |
| 2023 | 0.5% | TBD | 1.1% |
2022-2023 vintages show slight deterioration due to rate shock (borrowers locked at low rates facing higher costs elsewhere), but still far better than non-QM.
status: draft
What makes prime jumbo distinct
Documentation
Full documentation required. This is what separates prime jumbo from non-QM.
| Document Type | Purpose | Red Flag If Missing |
|---|---|---|
| W-2 (2 years) | Employment income | Bank statement substitution |
| Tax returns (2 years) | Verify W-2, self-employment income | Only 1 year provided |
| Pay stubs (30 days) | Current employment | Stale dating |
| Bank statements (2 months) | Asset verification, reserves | Large unexplained deposits |
| VOE (verbal or written) | Employment confirmation | Employer unresponsive |
Self-employed in prime jumbo: Some programs accept self-employed borrowers with 2 years of tax returns showing consistent income. This is still “full doc” because tax returns are the verification source.
Property types
| Property Type | Eligible | Notes |
|---|---|---|
| Single-family detached | Yes | Core product |
| Condo (warrantable) | Yes | HOA financials reviewed |
| Condo (non-warrantable) | Limited | Higher scrutiny, lower LTV |
| 2-4 unit | Limited | Some programs allow |
| Co-op | Limited | NYC market specific |
| Manufactured housing | Generally no | Fails prime profile |
Geographic concentration
Prime jumbo concentrates in high-cost markets:
| Market | % of Prime Jumbo Volume |
|---|---|
| California (combined) | 35-45% |
| New York metro | 15-20% |
| DC / Northern Virginia | 5-8% |
| Seattle | 4-6% |
| Denver | 3-5% |
| Boston | 3-5% |
Concentration risk: A California housing downturn would disproportionately impact prime jumbo pools. Capital providers adjust enhancement levels for geographic concentration above 40% in any single state.
status: draft
Execution options
Warehouse financing
| Metric | Prime Jumbo | Non-QM (Prime) |
|---|---|---|
| Advance rate | 93-97% | 85-90% |
| Pricing | SOFR + 125-175 bps | SOFR + 175-250 bps |
| Dwell time | 60-90 days | 90-120 days |
| Concentration limits | Higher | Lower |
Prime jumbo gets the best warehouse terms in non-agency because the collateral is closest to agency quality.
Illustrative pricing. See pricing disclaimer.
Securitization
Major prime jumbo issuers:
- Redwood Trust (SEMT)
- Shellpoint / NewRez (VOLT)
- Pennymac (PMIT)
- Rocket Mortgage / Quicken
- United Wholesale Mortgage
Enhancement levels:
| Rating | Prime Jumbo | Non-QM (Prime) | Non-QM (Expanded) |
|---|---|---|---|
| AAA | 5-10% | 14-18% | 18-24% |
| AA | 3-6% | 10-14% | 14-18% |
| A | 2-4% | 7-10% | 10-14% |
Prime jumbo AAA tranches require roughly half the credit support of non-QM due to the full documentation and prime borrower profile.
Whole loan sale
Flow programs: Pennymac, Two Harbors, and insurance companies (Metropolitan, Prudential) run ongoing flow programs for prime jumbo. Pricing: par minus 25-75 bps.
Bulk trades: Less common for prime jumbo since the market is more liquid. Bulk trades typically occur when originators exit or during market dislocation.
Agency execution comparison
For loans near conforming limits, originators compare:
| Execution | Net Price | Timeline | Certainty |
|---|---|---|---|
| Jumbo whole loan sale | 100.25-100.75 | 30-60 days | High |
| Jumbo securitization | 100.50-101.00 | 60-90 days | Moderate |
| Wait for limit increase | Par | Unknown | Low |
In a rising limit environment, some originators hold jumbo loans expecting them to become conforming-eligible. This creates duration risk but potentially better execution.
status: draft
Rating agency treatment
S&P LEVELS model
S&P applies lower stress multipliers to prime jumbo than non-QM:
| Characteristic | Prime Jumbo Adjustment | Non-QM Adjustment |
|---|---|---|
| Documentation type | 0% (full doc) | +50-150 bps CDR |
| FICO 760+ | -20 bps severity | Same |
| LTV 70% | -10% loss severity | Same |
| Geographic concentration | +0.5-1.5% enhancement | Same |
Moody’s MILAN
Moody’s applies lower base expected loss to prime jumbo:
| Collateral Type | Base Expected Loss (Aaa) |
|---|---|
| Prime jumbo (new issuance) | 3.5-5.5% |
| Non-QM (prime) | 8-12% |
| Non-QM (expanded) | 12-18% |
Enhancement volatility
Prime jumbo enhancement levels are more stable than non-QM because:
- Collateral characteristics are more consistent
- Historical data is deeper (prime jumbo existed pre-crisis)
- Performance is more predictable
status: draft
Red flags
Borrower red flags
- FICO drift below 700: Borrower may not be prime-quality
- DTI above 45%: Payment stress risk even for high earners
- Reserves below 6 months: Limited cushion for income disruption
- Recent employment change: Income stability question
- Self-employed with declining income: Business stress
Property red flags
- Non-warrantable condo: HOA financial risk, limited marketability
- Rural high-value property: Fewer comps, illiquidity
- Investment property labeled as second home: Occupancy fraud
- Appraisal above AVM by 15%+: Value inflation
Program red flags
- LTV above 80%: Pushes into non-prime territory
- Accepting bank statements: No longer prime jumbo by definition
- Waiving reserves: Removes cushion
- Exception rate above 10%: Guidelines not reflecting actual practice
status: draft
Key differences from agency
| Feature | Agency | Prime Jumbo |
|---|---|---|
| GSE guarantee | Yes | No |
| Credit risk | Government | Investor |
| Loan size | Conforming limits | Above limits |
| Execution | TBA market | Whole loan / RMBS |
| Pricing transparency | High | Moderate |
| Liquidity | Excellent | Good |
| CPR sensitivity | Moderate | High |
Why some loans stay jumbo: Even when near conforming limits, some borrowers prefer jumbo execution for larger down payments (no PMI required) or specific property types not eligible for agency.
status: draft
Related topics
- Non-QM lending — alternative documentation products
- Agency RMBS — conforming loans with GSE guarantee
- Deal structures — warehouse and securitization mechanics
- Diligence guide — loan file review procedures