Jumbo rates plunge to lowest since 2006
Jumbo loans are affordable again, if you can qualify for one.
The average cost of a 30-year, fixed-rate jumbo mortgage fell below 7% in early May for the first time since April 2007.
It reached 6.37% in our weekly survey of major lenders, taken May 20 -- the lowest it has been since December 2006 -- before rising to 6.68% in the June 3 survey.
Our extensive database of the best mortgage rates shows lenders in some markets offering 30-year, fixed-rate jumbo loans for as little as 5.75% with no points and fees of less than $1,000.
We expect jumbo rates will remain close to this through the summer.
Top jumbo lender Bank of America is promising to make more jumbo loans, and a growing number of smaller banks and credit unions are venturing back into the market.
But many borrowers are still being turned down because they can't meet the strict qualifying standards lenders have imposed on jumbo loans:
- Down payments of 20% or more.
- Credit scores of 700 or higher.
- Extensive documentation of all income.
- Enough savings to make mortgage payments for at least six months.
"The Realtor on the street, and the potential borrower out there, isn't yet seeing [more lending] in a big enough way that it's satisfying the need for jumbo mortgages," says Paul Bishop, research manager for the National Association of Realtors.
Jumbo mortgages are those that are too large to be backed by the government-owned mortgage companies Fannie Mae (the Federal National Mortgage Association) and Freddie Mac (the Federal Home Loan Mortgage Corp.).
Investors are wary of these unguaranteed loans, so the original lenders are generally stuck with keeping them on their own books.
In most areas of the country, Fannie and Freddie will only guarantee loans of up to $417,000, but in high-cost housing markets, that so-called "conforming loan limit" is raised to as high as $729,750.
Although jumbo loans account for only about 10% of the mortgage market, the impact of their scarce availability reaches further.
Realtors lament that one of the trickle-down effects of the credit squeeze on buyers of high-end homes is that when those borrowers can't trade up, potential first-time buyers find fewer affordable homes available.
If you're in one of the expensive real estate markets like San Francisco or New York City, where median-priced homes are above the conforming limit, you already know that even middle-class families are feeling the pain of the jumbo market crunch.
The credit tightening has been severe.
Bank of America, for example, wrote jumbo loans totaling $4.1 billion in the final three months of 2008, the most recent numbers available from National Mortgage News.
That was down from $4.9 billion in the fourth quarter of 2007.
Citibank saw its originations plunge 68%, from $6.8 billion in the fourth quarter of 2007 to $2.1 billion in 2008. Third-ranked ING Bank, FSB, had $1.7 billion in originations, down from $2.2 billion in the fourth quarter of 2007.
The most precipitous fall was by No. 4 Wells Fargo, which saw an 86% drop in its jumbo loan originations during the period, from $6.8 billion to $898 million.
Only two of the 10 largest jumbo lenders made more loans in late 2008. Navy Federal Credit Union's originations went from $193 million to $412 million, while U.S. Bank saw its volume increase from $271 million to $346 million.
Like many lenders returning to the jumbo market, First Internet Bank of Indiana is doing so cautiously.
It's offering 5/1 adjustable-rate jumbo loans in every state except Maryland, with an initial interest rate as low as 5.37% for the first five years and adjusting each year after that.
The bank requires credit scores of 700 or more for loan-to-value ratios of less than 70% and 720 for higher ratios. Minimum down payments range from 10% to 20%, depending on the market.
Of course, many consumers don't want ARMs since they've played such a big role in the mortgage crisis. But First Internet views adjustable-rate loans as less risky investments than fixed-rate mortgages.
"We are trying to strike a balance between a borrower's need for stability in their payments and our need to manage the interest rate risk," says Nicole Lorch, First IB's vice president of marketing.
"Because we cannot sell those on the secondary market, and we have to keep them on our books, we don't want the 30-year products at today's rates," Lorch says. "Now, if the jumbo mortgage market were to come back with options on the secondary market for us to sell some of those loans, then we would be able to expand the products that we offer."
Don't look for First Internet to heavily promote its jumbo loans, either.
As Guy Cecala, CEO and publisher of InsideMortgageFinance.com, says, lenders have been "shell-shocked" by their losses in the troubled mortgage market. Many are still unsure how active they want to be in any mortgage lending, let alone the jumbo market. So those that do offer the products tend to do it quietly.
If you're trying to beat the odds against finding an accessible jumbo loan, start with the major banks, which are most likely to have the capacity to make such loans. But don't overlook the lenders in your own back yard.
"You won't know unless you just contact the bank down the street whether they're making jumbo mortgages, [but] sometimes you'll be surprised that they will have the best deal going, particularly if you've already got a banking relationship there," Cecala says.
If it's too soon to celebrate the complete comeback of jumbo loans, what will it take to really turn things around?
The National Association of Realtors is advocating a temporary lift in the limits to allow Fannie and Freddie to purchase even super-jumbos, as well as the possible use of Term Asset-Backed Securities Loan Facility, or TALF, funds to buy jumbo loans and stimulate the market.
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