Will Jumbo Loan Refinancing Stage A Comeback

17 07 2009

Will Jumbo Loan Refinancing Stage A Comeback

Posted by: admin in mortgage industry

Will Jumbo Loan Refinancing Stage A Comeback
It is hard to feel bad for millionaires and billionaires when there is enough misery going about in the real estate market to keep everyone in tears.

However there is no denying that foreclosures have respected neither class nor wallet size with jumbo mortgages being shredded with foreclosures all over the place in what some have called the million dollar home massacre. Houses that only some months ago were priced at $3 million are now struggling to be sold at $1 million with some streets having dozens of luxury home on sale.

Has the time for large mortgages on luxury homes come to a sudden end?
Although this sector is feeling the flak as much as any other sector there might be light at the end of the tunnel for jumbo loans. Why should I care you might ask? Well as the saying goes rich women (and men) are only pitied by their psychologists but the health of jumbo mortgages might be a serious indicator of the health of the economy as a whole which is kind of interesting to all of us.

To illustrate this, note how the largest jumbo lenders are Bank of America, Wells Fargo, JPMorgan Chase and Citigroup. The share of the total mortgage market dropped from 14.3% in 2007 to 4.4% in the last quarter of 2008. For some companies the percentage of their portfolio invested in jumbo mortgages is even higher, take for instance ING Direct, 40% of their mortgages are jumbo mortgages. In the U.S the jumbo mortgage market alone was worth $100 billion last year, now that is important to all of us if we are part of the economy, which like it are not we are.

So what is the news for this important sector of the housing industry?

Up to now the drop in interest rates that lower cost loans were enjoying hadn’t really affected jumbo mortgages as banks and lending institutions clammed in shock and made jumbo mortgages expensive and very difficult to obtain. But interest rates are predicted to drop for this sector making it easier to buy a house worth $1 million or more as interest rates drop at more affordable levels as banks view them as a better and better asset for their portfolio.

The interest rates are still much higher than complying mortgages (complying as in loans guaranteed by the a federal mortgage agency). For example jumbo loan interest rates is now at 6.63% in comparison to the 5.07% for a conforming mortgage.
Interest rates drop but requirements tighten.

Even though jumbo mortgages will be cheaper they won’t necessarily be easier to get. Banks have been bruised by the credit crisis and are very careful who they lend to. Jumbo borrowers will have to Glatt Kosher in order to qualify for a jumbo mortgage with credit scores in the neighborhood of 700, 20% minimum downpayment and 3 to 6 months payments in savings.

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