Jumbo Pool

Asset Financing

What is a Jumbo Pool

A jumbo pool is a Ginnie Mae II mortgage-backed security that is guaranteed by pools of multiple issuers. These pools combine mortgages with similar characteristics and are more massive than single-origin pools. The mortgages contained in giant pools are more diverse on a geographic basis than those of single-origin pools.


Jumbo pools are groups of mortgages from multiple lenders that are securitized by selling shares of the pools in the open market to investors. Investors who purchase these securities receive full payment of principal and interest from a central paying agent, usually annually or every six months. Interest rates on mortgages in jumbo pools can vary by one percentage point. This limited variation in interest makes the principal and the interest payments received by investors predictable and less volatile. Since several issuers support these pools, they are generally considered to be a safer form of investment in mortgage-backed securities (MBS).

Risk associated with giant pools

Potential risks for investors include prepaying one or more of the mortgages in the jumbo pool. Mortgage holders can make additional payments to pay off their mortgage sooner or sell their home and pay off the full amount all at once. When interest rates fall, mortgagees can refinance their loans at a lower rate and pay off the entire mortgage to do so.

Another risk for investors in jumbo pools is the natural narrowing of the main payment, as loans in the jumbo pool are repaid. This reduction in the size of the principal due decreases the size of the corresponding interest payments. For example, if the principal is $ 10,000 and the rate is 6%, the interest will be $ 600. If the amount of the payment or the prepayment on the capital of the pool is $ 100, the next interest payment will be on the smallest amount (6% of $ 9,900 = $ 594).

These risks for investors of prepayment of a loan and of shrinking capital are not specific to jumbo pools and affect all investors in mortgage-backed securities.

In general, jumbo pools tend to carry less risk than traditional mortgage pools. Although all mortgage-backed securities carry some risk, the diversification of the pool by geographic area tends to mitigate many of the reasons why mortgage holders default on their loans. Regionally, mortgage holders may default on banknotes due to a natural disaster in the region or the closure of localized industries. Job loss has a statistical probability for a given debt holder, but savings tend to vary by region, so defaults due to job loss follow local economic downturns. As a result, jumbo pools pose fewer risks associated with local economic conditions than mortgage pools from a single lender.

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