• Jumbo loans, which are home loans bigger than what government-controlled Fannie Mae and Freddie Mac can back, are causing concern in the real estate market. These types of loans, frequently granted by regional banks, have been hit hard due to the shaky ground of commercial real estate amidst pandemic woes.

• Regional banks typically rely heavily on commercial real estate as part of their lending portfolio. These banks are major contributors in issuing out jumbo loans, which are a tad too gigantic for government-sponsored enterprises like Fannie Mae and Freddie Mac to deal with.

• Lately, the commercial real estate market has become think quicksand; the type you’d find in old adventure movies where the guy falls in but pulls himself out using a vine or something. The rising number of business closures and shrinking office footprint has caused a steep drop in commercial-property values and in-turn, heightened the risk of lending for regional banks.

• This increased risk involved in real estate lending is having a domino effect, causing an upward push in mortgage rates for jumbo loans. Yes, you heard it right! It’s like feeding a horse with oreos because you’ve run out of hay.

Wrapping It Up With My Hot Take

No Oreos for the “Jumbo” Horse

Crisis of the Regional Banks and Today’s Real Estate Market

So here’s the real estate dish served hot and spicy. We’ve got jumbo loans which are basically the sumo wrestlers of the mortgage world. These loans are typically sought by people looking to buy luxury homes or properties in highly competitive markets. However, today’s increasingly wobbly commercial real estate market has decided to come to the party uninvited, leaving jumbo loan seekers at the mercy of climbing mortgage rates.

It’s almost as if Fannie Mae and Freddie Mac held a party and specifically said, “Come one, come all…unless you’re a jumbo, then please, stay away.” This has left jumbo loans fighting their battles with the regional banks, which themselves are stuck between a rock and a hard place – the hard place being the sinking quicksand of commercial real estate.

The enticing lure of commercial property trading once was a goose laying golden eggs for regional banks, and now it’s more like a chicken laying scrambled eggs. So, if you’re gambling with your money, betting on jumbo loans right now is like betting on a horse that’s been fed oreos instead of hay. It might nibble happily, but ultimately, it ain’t gonna win you the race, folks!

Until the economy smooths out its wrinkles, and normalcy returns to the commercial real estate market, the jumbo loan party might just have to deal with a shortage of punch… and a surplus of oreos. Hang in there, real estate aficionados!

Original article: https://www.inman.com/2024/03/01/nycbs-surprise-2-7b-q4-loss-rekindles-regional-bank-fears/