Larger loans mean higher standards

With lenders requiring near-perfect credit before making any kind of loans since after the financial crisis, more financial institutions are beginning to warm up to the idea of easing their standards and helping borrowers who haven't been able to receive a loan or mortgage. In all, this is expected to help the economy recover, with more potential home and car owners. However, there are still some loans that are making financial institutions wary: jumbo loans. 

An article in the Wall Street Journal this week explained that many banks are still requiring much stronger credit histories than other types for borrowers applying for jumbo loans. Some banks require a down payment as much as 20 percent to 30 percent, as well as more than a year of cash reserves in case something happened to cash flow. Some are even greater for loans more than $1.5 million. 

Not only do banks have more at stake with these large loans, but often times bigger houses are more personalized, and, therefore, harder to sell if something does go wrong. 

"You can look at it and say, 'This is exactly what I want.' I could look at the same house and say, 'I sure don't want a pool in my living room,'" Citi Private Bank's Mike McPartland said. 

Of course, even with these high standards most banks have in place, there are still some differences between lenders. A borrower's personal history with the bank, or the location of the property, can also come into play, and Citi Private Bank looks at multiple requirements beyond a credit score when making these loans. 

Other banks can also adopt this strategy, with credit and risk management software. Instead of relying on only a tier system before lending $2 million, with more information, financial institutions can have a stronger picture of what borrowers are like, and their qualifications. With software like this, banks can both extend their jumbo loan portfolio as well as remain profitable. 

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