Jumbo and Second Mortgage Lending

Any lending that did not have government backing was virtually non-existent last year. Therefore, it is no surprise that mortgages for jumbo and second home purchases were effectively shut down.

But some modest signs of revival for jumbo and second home mortgages have appeared this year. As banks make a profit, it is inevitable that more lending to non-government loans will happen. However, a monkey wrench was thrown into the mix by Greece.

If Greece defaults—because its tax revenue is not able to cover the pension benefits as many Greeks are retiring at the relatively young age of 55— then banks in Germany and other European countries will come under pressure. These banks will not then be able to lend to other countries such as Spain, Portugal and Italy, who also need to borrow heavily to finance their deficits.

The contagion will surely then spread to the U.S. banking system as well, which means less money available for lending – particularly on jumbo and second home mortgages. At the moment, the problem spreading all the way to the U.S. is a small probability event, though it will be a highly impactful if it was to occur.