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Jumbo loans no longer dead in the water
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Do interest rates and the increasing availability of jumbo mortgage loans mean the tide is turning for luxury homebuyers?
Nearly extinct due to shaky credit markets, the re-emergence of the jumbo mortgage loan is no doubt good news for builders who sell high-end homes or build in expensive markets, according Theresa Burney in a recent BUILDER Magazine article.
It seems that interest rates have improved, and more financial institutions are beginning to extend money for home mortgages with price tags too high to be bought by Fannie Mae or Freddie Mac, according to industry watchers.
BUILDER reports that Standard Pacific Homes, with its large California presence, has noticed an improvement in the past few weeks. ‘Certainly the migration down in rates has helped,’ said Todd Palmaer, president of Standard Pacific’s California region. ‘But what we’ve also seen in the past few weeks is more product and more sources of product coming to the market.’
Terms are improving too, According to Palmaer, jumbo lenders are becoming a bit more liberal in loan-to-value ratios, some sources willing to go up to 85%.” Consequently, Standard Pacific has seen a slight up tick in demand in the past 30 days to 45 days, Palmaer said, remaining cautiously optimistic.
Business Week’s Prashat Gopal, in his May 24th article, Jumbo Loans Could Make a Comeback, reports that huge lenders like Bank of America is actively pursuing more jumbo loans, according to one of it product executives, Vijay Lala.
The average rate for a jumbo loan is still substantially higher than for conforming loans – those loans guaranteed by a federal mortgage agency that typically top out at $417,000, but can be as high as $729,750 in certain high-cost markets. The average interest rate for a jumbo loan, which unlike conforming loans aren't federally guaranteed, has dropped from a high of 7.9% at end of October to 6.63% last week, according to the Business Week article. “That is the lowest average rate since the end of 2007, according to financial publisher HSH.com in Pompton Plains, N.J. Of course, that's still well above the average rate of 5.07% for the smaller conforming mortgage. But the Federal Reserve's announcement on Mar. 18 that it would purchase an additional $750 billion of mortgage-backed securities backed by Fannie Mae (FNM) and Freddie Mac (FRE), and buy as much as $300 billion in Treasury securities, has raised hopes that interest rates will continue to fall,” reports Gopal.
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