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What Is a Jumbo Pool?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 29 October 2014
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    Conjecture Corporation
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A jumbo pool is a financial term used to identify a mortgage-backed security that is supported by a number of investor pools rather than one pool created by a single issuer. A pool of this type will often include the uses of mortgages on properties over a wider geographical area, and may involve terms that are more long-term than other types of investment pools. Often thought of as a safer alternative to other types of pools, the jumbo pool is an investment option that is likely to appeal to investors who prefer to focus attention on more conservative deals that combine lower volatility with a consistent if not spectacular return.

There are several benefits associated with a jumbo pool. One has to do with the sheer scope of the pools that provide the backing for the securities included in the investment arrangement. Since multiple pools are used to support the investment, a broader range of properties that may include both commercial and residential properties is very likely to be included in the pool. This creates a sense of balance that increases the chances of some of the mortgages backing the securities to offset losses on other mortgages with relative ease. The end result is that the investor is less likely to see the jumbo pool drop to a level that renders it unprofitable.

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Another aspect that tends to differentiate a jumbo pool from other types of investment pools has to do with the greater geographical range of mortgages that support the mortgage-backed securities that are key to the success of the investment. While a single-user pool may focus more on mortgages associated with properties in a given city, state, or region, a jumbo pool may include investments that have to do with properties across the country and possibly even international locations. This characteristic can help make the investment less dependent on what is happening in the local economy and what that is doing to the ability of borrowers to remain current on the mortgages used to back the securities.

Since a jumbo pool is considered a relatively safe investment, the returns are generally not as impressive as pools that carry a greater degree of risk. At the same time, those returns are usually easier to project with accuracy. This means that investors can typically look forward to receiving returns on an ongoing basis for several years without having to devote a great deal of time or effort to evaluating the performance of the jumbo pool.

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