Jumbo Mortgage Rates Hit All-Time Low

Mortgages fall into two broad categories, conforming (sometimes referred to as conventional) mortgages, and jumbo mortgages. Conforming loans are those that are under $417,000, and jumbo mortgages are those that are over $417,000 (although the threshold amount is higher in some localities where property values are very high). Conforming mortgages are so-called because they conform to guidelines established by Freddie Mac and Fannie Mae that do not allow either company to cover a loan of more than $417,000.

Jumbo mortgages are relatively rare, in 2010 they comprised approximately 5% of the overall mortgage market. In 2007 jumbo mortgages made up almost 15% of the total market. One of the reasons for the drop-off is that there is almost no secondary market for jumbo mortgages. Many lending institutions that originate mortgages bundle them into mortgage backed securities (MBS) and resell them to investors on the secondary mortgage market.   Many of the investors who purchased jumbo MBS took a bath when the market fell apart and are now skittish about investing. As a result, lenders who issue a jumbo mortgage hold onto it, and if the borrower defaults, the lender takes the loss. While the Federal Reserve has snapped up $1.25 trillion worth of mortgage backed securities, it has not purchased any jumbo MBS, so the market is not being supported by the government.

Recently, delinquencies on jumbo mortgages have hit extraordinarily high numbers, 9.6% in January 2010, which is up 3.7% from the previous year. Further complicating matters is that in the case of a default it may be more difficult for a bank to sell a luxury home in a timely manner to recoup its money because there is a smaller market for these types of homes.  Lenders are now more risk-averse than ever, so standards for issuing a jumbo loan are very strict. Many lenders require a down payment of as much as 40% of the value of the home as well as credit scores between 720 and 750.

If you can meet the qualifications for a jumbo mortgage, there is good news. Interest rates on 30 year fixed-rate jumbo loans are at a five year low point, on average 5.88%. The average was as high as 7% only two years ago. Lenders know there is more profit in jumbo loans than in conforming loans, and with the reduced number of suppliers for jumbo loans banks have been able to demand more money for a down payment. As of March 1st, 2010, Total Mortgage Services is offering 30 year jumbo mortgages to qualified lenders at 5.75%. Demand for luxury housing remains low for the time being, but as the economy improves we can expect the market to pick up steam as buyers are enticed to the table by low rates.  

These record low mortgage rates will not last forever. Last week the Federal Reserve made clear that it will raise interest rates to combat potential inflation possibly later this year. Total Mortgage Services has many mortgage experts who would like to help you with your jumbo mortgage needs.  Contact us today at 888-868-2509 to learn about all your jumbo mortgage options.