by Robert Hyder
As the housing crisis broadened, jumbo mortgages predictably became harder to obtain. Already considered high-risk mortgage loans before the credit crunch began, jumbo mortgage rates climbed to excessive limits. The recent drop in conforming mortgage rates has also had an impact on jumbo mortgage rates.
Jumbo mortgages, as they are commonly referred, are non-conforming loans that are above the industry standard for conventional conforming loans that can be bought by Fannie Mae or Freddie Mac. The industry standard loan size that can be purchased by these two government-sponsored enterprises (GSEs) on a 1-unit property is $417,000, but can go as high as $729,750 in high-cost areas on the continental United States and $1,094,625 in high-cost areas in Alaska, Hawaii, Guam and the U.S. Virgin Islands.
A small number of prominent lenders recently began announcing jumbo mortgage rates in the low-to-mid 5% interest range. Industry experts expect more lenders to join in on this practice in the very near future.
At their peak, jumbo mortgage fixed rates reached almost 8% at the end of October 2008. Today, some mortgage lenders are being extremely aggressive with their jumbo fixed-rate mortgages, pricing as low as 5.25%. On a $1 million loan size, that could mean a savings of over $1,800 on a monthly mortgage payment.
Because mortgage lenders no longer have buyers for the jumbo mortgage loans that they approve, they are required to keep them in their portfolios. Since consumers are now being especially cautious with their money, they are no longer investing in the stock market and are putting it into much safer and conservative investments, such as savings and money market accounts. As a result, banks now have more money to lend.
Ultimately, when money comes in the front door, banks are then sending it out the back door as a mortgage loan. In addition, when homeowners are refinancing their conforming mortgages due to the record-low interest rates, banks are afforded more liquidity to offer jumbo mortgage loans.
Each lender will have different requirements than the next. Because there are no buyers for jumbo mortgages, each lender creates and maintains their own guidelines and pricing before placing it in their portfolio. A slow down in jumbo mortgage originations indicates a tightening of requirements and an increase in rates. Consequently, these extremely low jumbo mortgage rates may not be available for very long.
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April 6, 2009 @ 12:58 pm
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