Monday, April 20, 2009

What is a Jumbo Mortgage

Jumbo Mortgages are those pesky mortgages that due to their size don’t fall into the Fannie Mae and Freddie Mac guidelines for confirming loans and therefore can not be purchased by them. At the moment that limit is $417,000 in most of the country but can go as high as $729,750 in areas the government has designated as High Cost for single family homes. Before the housing crisis and  credit crunch this wasn’t much of a problem. Banks could write a loan and then sell them off to institutional buyers. There was a vast liquid network tha had lots of competition. Those days are gone. Now when a bank writes a jumbo loan it‘s forced to keep it on the books. If cash is tight like it is today. Banks aren’t too eager to push this product and the price (rate) is driven up if you can find a bank that wants to do a deal.

Should investors take their money out the stock market and seek safer investment in things like bank CD’s , savings accounts, etc. this would bring more money in the banks front door and the cash restrictions on the banks would be alleviated allowing more activity in jumbo mortgage products.

Government bailout money should also have an effect on the liquidity issues. There are some faint positive signs that lenders are becoming more receptive but it probably too early to tell.

Raising the Fannie/Freddie conforming guidelines would have the greatest effect alleviating the pressure that is building. But don’t look for a return of the rock and roll days of the past any time soon.


What you should know about Jumbo Mortgages


Since banks are going to have to keep these loans on the books. I would be hard pressed to believe that more than 7%-9% of their business is going to consist of this product. I think that figure is probably very aggressive.

Keep in mind that they are going to have some stiff underwriting guidelines. If you don’t have a credit score of 725 and at least 20% to contribute to the deal you can pretty much forget getting a jumbo loan today.

 Next think of your lender as a money store. If your score and LTV are solid and they won’t do a deal it's probably because they just have run out of money. They have done all the deals they intend to do that month. If you’re at the end of the month your deal may get approved when it rolls into the new month. I know it may sound funny but banks run out of money. Now, they are not going to carry a high percentage of jumbo’s in their portfolio. When they reach a ratio they feel comfortable with they will stop doing any more of the loans. It's that simple.

If you are in the market to refinance pay attention, you may have acquired you property with a jumbo but won’t need one to refinance. In 2004 the standard conforming single family limit was $333,700 and in 2005 $359,650. Today, you may fall within Fannie Mae/ Freddie Mac guidelines for a conforming product. 

If you qualify and have found a lender that will fund the deal, congratulations your one of the select borrowers that’s get’s to pay a premium on the rate. At present the jumbo rate is around 6.375% on a 30 year fixed rate loan. The 30 year fixed conforming is under 5%. 

Next post I tell you how to get a jumbo loan without getting a Jumbo Mortgage

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