Toll Brothers Offers Glimmer
Of Hope on Jumbo Mortgages

Luxury-home builder Toll Brothers Inc. offered signs that liquidity is returning to the corner of the mortgage market that covers the most expensive homes, even as it said housing-market softness sent its fiscal third-quarter profit down 85%.

The Horsham, Pa., company said it hasn't faced major problems funding what are known as jumbo mortgages that it had originated. It also said it found a new-funding source for such loans should the current source dry up.

Also yesterday, IndyMac Bancorp Inc.'s IncMac Bank FSB unit said it will again offer prime, single-family residential, full-documentation jumbo loans, after cutting new loans because of liquidity problems in the secondary market. The Pasadena, Calif., bank-holding company said its financial position allowed it to be "fully committed to the market for prime jumbo-home loans."

Jumbo mortgages exceed the $417,000 limit for loans eligible for purchase and are guaranteed by government-created mortgage investors Fannie Mae and Freddie Mac. Loan originators like banks and home builders must instead find buyers among private investors or bear the risk themselves. Rates on jumbo mortgages have jumped as trouble with subprime mortgages has rippled across the lending market, making investors skittish.

But jumbo-loan rates show signs of stabilizing. The average 30-year fixed-rate jumbo loan was at 7.5% this week, up from 6.5% in mid-May but flat over the past few days, said says Keith Gumbinger, vice president at financial publisher HSH Associates.

Yesterday, Toll said financial institutions such as Countrywide Financial Corp. and Wells Fargo & Co. continue to fund jumbo loans from its in-house mortgage unit. The builder also said that Citizen's Financial Group, owned by the Royal Bank of Scotland Group PLC, recently made a $500 million commitment to fund Toll's mortgages.

Toll's stock rose 5%, or $1.06, to $22.15 in 4 p.m. composite trading on the New York Stock Exchange.

"A lot of people have been afraid that the mortgage pipeline has seized up," Deutsche Bank analyst Nishu Sood said. "Toll was able to provide some confidence that the mortgage pipeline is still functioning."

While that pipeline may still be working, the builder conceded that tightening mortgage standards will likely shrink the pool of potential home buyers. "Mortgage market liquidity issues and higher borrowing rates may impede some customers from closing, while others may find it more difficult to sell their existing homes," Chief Executive Robert Toll said.

Mortgage-market uncertainty has weighed on Toll, which relies on these loans to sell many of its high-end houses, which have an average sale price of about $658,000. About 46% of buyers using Toll's mortgage unit take jumbo loans.

Toll said it reported some of the lowest traffic levels in the fiscal quarter ended July 31 in its two decades as a public company. The quarter's results included pretax write-downs of $147.3 million. Toll declined to provide guidance for it fourth quarter, citing uncertainty in the mortgage and housing markets.

-- Andrew Edwards and Dawn Wotapka contributed to this article.

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