Jumbo Loans, Its Getting Better
What makes a loan a Jumbo?
Jumbo loans are classified as a mortgage that is above $417,000 in most areas of Texas. Before the shakeup in the mortgage industry that was the limit for all of the US. So if you lived in many parts of the East or West coast, a high percentage of the mortgages were in the Jumbo category. In 2008 Fannie Mae/Freddie Mac put increased the limit in “high cost” areas. Currently in many parts of California you can get a conventional loan for over $700,000. This is all based on the median house price in a given area.
A quick history of Jumbo loans
Any loan that is not insured by Fannie, Freddie, HUD, or VA is considered a non-conforming or portfolio loan. That means that the lender is holding that loan in their portfolio and it is not backed by a government entity. Up until 2007 many different loans were included in the term non-conforming loans. This included Subprime, Alt-A, and Jumbo loans. These loans were packaged up, securitized, and sold on Wall Street. In many cases there would be 25 to 30% of jumbo loans in these packages, the rest were subprime loans. When everyone came to the realization that many of the subprime loans were over-leveraged or non-performing, then the jumbo loans were unfairly thrown into the same category. Then the credit crunch came along. Most lenders and banks began to horde cash and not loan money. Subprime and Alt A loans were gone almost overnight and jumbo loans were not backed by any government entity. So they had a similar fate. While many of the subprime loans were done with 0 down payment and poor credit, most jumbo loans still required a 5 to 20 percent down payment and above average credit. Currently the default rates on jumbo loans done in the last 5 years are lower than almost any other type of loan done in the same period. However because the investors that bought jumbo loans have been holding on to their cash, the market for those loans has been almost non-existent for the last 18 months. For the last 10 years jumbo loans required a bigger down payment and carried an interest rate from .25% to .50% higher than a conventional loan. That all changed in 2008, for the few lenders that would still buy a jumbo loan they were charging between 1.5% and 2% more than conventional loans. This has created big problems on the housing market in the upper end of price ranges. Because of this short supply and expensive financing the luxury home market has been reliant on buyers that could pay cash for these properties. That limits a large segment of potential buyers.
Current Jumbo Loan Market
However things have started to loosen up, some lenders are realizing the hole in the market and are starting to finance jumbo loans again. Today I can offer a customer with good credit and a 20% down payment a jumbo loan in the low 6’s on a 30 year fixed loan. While many lenders don’t have this product we do. If you know anyone that could benefit from this information please pass along my information.
