Jumbo mortgages, those in excess of $417,000 or $729,000 depending on the market, practically disappeared with the burst of the housing bubble, but now they are coming back with major lenders like Bank of America and ING putting some real effort into the segment. But that doesn't mean people are actually buying homes that require jumbo mortgages, according to lenders. There is a jumbo REFI boom of sorts, but nobody seems to be buying big houses that aren't short sales or foreclosures.

Jumbo mortgages have stringent requirements, including hefty down payments. Buyers are still waiting to see if the real estate market has bottomed out, and few people these days want to commit to a big down payment if it means selling securities that are already down..

Rates for 30-year fixed-rate jumbo mortgages have dropped from an average of 7.28 percent a year ago to 6.44 percent last week, the lowest since April 2007, according to HSH Associates, which tracks consumer loan information. Rates for smaller 30-year mortgages were averaging 4.97 percent last week.

Jumbo mortgages are those too large to be backed by the federal government through Fannie Mae and Freddie Mac. Mortgages that are under those limits — $417,000 or $729,000 depending n the market — are so-called “conforming” loans.

Jumbo rates are also higher because the secondary market — where mortgages are sold to generate new funds — has dried up. Now, lenders need to keep loans on their own books, assuming the risk themselves.

Keith Gumbinger of HSH, which is based in New Jersey, said the difference between conforming and jumbo mortgage rates used to run around one-fourth of a percentage point, or 25 basis points. “So if a conforming rate was 5 percent, a jumbo would be around 5 1/4. Right now, that gap is extraordinarily wide. Last week, it was exactly 150 basis points.”

The Federal Reserve's influence to lower conforming mortgage rates has produced the larger gap, he said. “The gap remains extraordinarily wide, not because jumbos aren't doing their part. They are. But because other prices have been artificially influenced lower.”

He advised anyone looking for a mortgage or to refinance to shop around more than ever. “Some lenders are in a better position to make you a competitive loan than others. You've got to go out and scour around your marketplace. Shop it effectively.”

Some large lenders, including Bank of America, are starting to promote jumbo rates below 6 percent.

In time the combination of falling home prices and lower mortgage rates will improve the affordability of higher-end properties and sales will start to rise. The concern about waiting for the bottom is the only way you know you've hit bottom is when it is on the way up.

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Refinancing applications continue at a torrid pace, up another 3.7 percent last week driven by even lower rates, according to the Mortgage Bankers's ssociation, while new home mortgages remain almost nonexistent.

Loan rates hit a new low last week, the MBA said, although the decline from the previous week was slight: The average contract rate for 30-year loans dipped to 4.61% percent from 4.63 percent. The 30-year loan rate has tumbled from 5.07 percent in early January as the Federal Reserve has ramped up its efforts to push down mortgage costs by buying mortgage-backed securities in the open market.

Although refis have soared, the MBA index that measures loan applications for home purchases has risen only modestly in recent weeks, despite the plunge in loan rates. The purchase-loan index edged up less than 0.1 percent last week and is up just 14% since reaching an eight-year low the week of February 6, even though home affordability, as measured by a National Association of Realtors index, is at its highest level since the group created the index in 1981.

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It's a great time to refinance with mortgage rates at historic lows.  Now if only mortgage bankers could find some money to lend.

Mortgage bankers say the money they borrow to finance home loans — called warehouse lines of credit — has dried up and borrowers may pay the price in artificially inflated interest rates and delayed loan closings, according to the Mortgage Banker's Association, a trade group.

Warehouse credit lines provide mortgage bankers with the money they need to close a mortgage. The bankers then pay down the credit line after the mortgage is sold to Fannie Mae, Freddie Mac or other investors.  But the amount of available credit has plummeted to about $25 billion from $200 billion a year ago, according to the mortgage bankers group. Many of the large financial institutions that extend credit to the bankers have left the business, imposed tough restrictions or capped existing lines as they try to shore up their own capital. In the past few weeks, National City Bank, J.P. Morgan Chase and Guaranty Bank have announced plans to end warehouse lending.

Mortgage bankers say the supply of money available to them is shrinking just as demand for loans is taking off, blunting the Obama administration's efforts to loosen consumer lending. Last week, loan applications were up 3 percent from the previous week and almost 69 percent compared with the previous year, the mortgage bankers' survey found.

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Jumbo mortgage specialist firm Thornburg Mortgage Inc., said today it plans to file for bankruptcy protection and shut down.  Remaining assets will be sold or liquidated to pay bondholders and creditors, according to a statement today from the Santa Fe, New Mexico-based company.

Ironically, Thornburg's loan portfolio of mortgages over $417,000 had little subprime exposure and the company's mortgage holders were doing a good job of staying currnet on their loans.  What killed the company was a lack of new jumbo loan production and a credit squeeze of its own. The company started running short of cash in August 2007 as foreclosures nationwide headed toward new highs and investors became leery of assets backed by home loans. A bailout in March 2008 from buyout firm MatlinPatterson Global Advisers LLC failed to revive the company as lenders demanded payments to cover the plunging value of mortgage assets.

Thornburg’s lenders including JPMorgan Chase & Co. and Credit Suisse Group AG can take possession of their collateral and use proceeds to reduce the company’s debt, Thornburg said.  Thornburg had $7.3 billion of mortgage-backed securities and owed its lenders $4.7 billion against those assets, according to company presentations. Thornburg today also agreed to transfer its mortgage-servicing rights to the investment firms.

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The U.S. Department of Housing and Urban Development recently announced stricter rules for mortgages it will accept under its FHA insurance program. the new rules, which are mainly intended to discourage mortgage fraud, are being interpreted in interesting — and remarkably uniform — ways by lenders.

The new rules increase Mortgage Premium Insurance fees, impose a maximum Loan-to-Value of 85 percent for cash-out loans (95 percent for non-cash-out), require that cash-out loan applicants actually live in the house and have owned it for at least 12 months. For loans over $417,000, FHA is requiring two appraisals.

The new rules aren't official until April first but they are being embraced — and in some cases implemented — early by many lenders.

One area where lender implementation varies from the text of the FHA guidelines is for qualifying credit scores. Traditionally credit scores have not been a major factor in underwriting FHA loans, making them in many cases the last bastion of sub-prime lending. But with this rule change most lenders are imposing a minimum 620 score even though that is not in the new FHA rules.

The lenders are also finding creative ways to use the double appraisals on higher value properties. The FHA rules simply require that two appraisals be ordered, not which of the two appraisals to use. The FHA logic is that multiple appraisals will discourage the use of artificially high appraisals that could facilitate mortgage fraud. Which appraisal to use for underwriting is left to the lender.

According to experienced mortgage brokers, this is leading to interesting applications in the secondary mortgage market. Specifically the lender will use the lower appraisal to determine how much money can be lent on the property. If the lower appraisal says the property is worth, say, $100,000, then the maximum loan amount would be $85,000 or 85 percent with cash-out. But by applying the higher appraisal — say $103,000 — to characterizing the loan for resale, the same mortgage looks to have a loan-to-value of $85,000/$103,000 or 82.5 percent. The lower the loan-to-value the higher the secondary resale value of the mortgage, so this technique converts into greater revenue for the lender.

Its the mortgage lender version of the game Three Card Monty.

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NEW YORK, March 4, 2009 - JPMorgan Chase announced today that it strongly supports the Administration's mortgage modification program, as detailed today.

“This builds on the efforts we have already implemented and extends them to more struggling homeowners and provides us and other servicers more options to keep families in their homes,” said Jamie Dimon, Chief Executive Officer of JPMorgan Chase & Co. “The plan appropriately balances the interest of homeowners, mortgage servicers and investors. As a result, more families will be helped with long-term and sustainable solutions through a consistent process, including a verification of income.”

We support the program because:

The guidelines establish a clear, fair and consistent set of standards for all servicers to follow.

It is intended for the right borrowers: those with mortgages below $729,750.
All borrowers must fully document their income.
All borrowers must clearly demonstrate financial hardship.
It covers verified owner-occupied homes only.
The owners of the mortgages will be confident that servicers will follow owners' best economic interests in making modifications.
“JPMorgan Chase believes that this program, along with the fiscal stimulus plan and the TALF program, are all strong steps to improve both the economy and the financial system and to help those who are deserving and in need of assistance,” Dimon said.

“There is no silver bullet,” he said. “The thoughtful and rapid roll-out of various programs is the only intelligent way to begin to solve these problems. These mortgage modifications are economically and morally the right thing to do for individual customers. It is the respectful way in which we all would want to be treated. We will work hard to incorporate the new criteria into our own loan modification process to quickly help customers, and we urge all to participate in this plan as soon as possible.”

“This program maintains the essential principle that individuals, businesses and corporations should pay their loans if they can afford to do so,” Dimon said. “We believe this program's completeness eliminates the need for judicial modification in bankruptcy, but if legislated, judicial modifications should be consistent with this plan and only for borrowers who couldn't qualify or were not offered a modification.”

“Extraordinary times need extraordinary measures. It is time to implement this program - even if it's not perfect in everyone's view - and move on,” Dimon said.

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US Bank is participating in the Homeowner Affordability & Stability plan which the U.S. Treasury Department recently announced details of the program. This initiative allows eligible borrowers to refinance or modify their existing first mortgage.

Refinance if all of the following are true:
1. You have a Freddie Mac or Fannie Mae loan. If you’re not sure, freddiemac.com/avoidforeclosure or fanniemae.com/homeaffordable.
2. You have not been 30 or more days late on your mortgage payment in the past 12 months
3. You believe the amount you owe on your first mortgage is about the same or less than the current value of your home

Loan Modification if all of the following are true:
1. You occupy the home as your primary residence
2. The amount you owe on your first mortgage is less than or equal to $729,750
3. You are already delinquent in your payments or you are having difficulty paying your mortgage due to a significant increase in your monthly payment, a reduction in income, or hardship that has increased your expenses
4. You obtained your current mortgage before January 1, 2009

Call US Bank at 866-932-0462

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Ocwen Mortgage has claimed to successfully help over 70,000 people resolve mortgage delinquency and foreclosure issues for 2008.

The following are their basic requirements to modify eligible mortgage under the “Making Home Affordable Program.”
1. You have a current or foreseeable financial hardship
2. You live in the property as your primary residence
3. Your loan must be a 1st lien
4. You must be able to confirm that you do not have the sufficient cash or other readily available assets to make your monthly mortgage payments
5. Loans must have been originated on or before January 1, 2009

Click here to apply for mortgage assistance with Ocwen

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Bank dividends may soon be a thing of the past if the Federal Reserve has its way.  The Fed is urging Wells Fargo and dozens of banks getting TARP bailout funds to consider future loan losses and the need to bolster capital before paying dividends to shareholders.

This urging came in a letter from the Fed to its regional supervisors.  The letter, made public Thursday, said banks  “should reduce or eliminate dividends” when earnings decline or the economic outlook deteriorates.

Some banks resisted dividend cuts even as regulators grew increasingly concerned about their ability to withstand losses.

The Fed told banks in November that it was concerned they might not be using the rescue funds appropriately. Wells Fargo, US Bancorp and PNC Financial Services Group are among banks that have maintained their dividends as loan losses surged and earnings plummeted.

On Monday JPMorgan Chase & Co., the second-largest US bank, slashed its dividend by 87 percent to 5 cents from 38 cents.

An earlier draft of the Fed’s letter, described by two people who saw it, urged banks to put their capital into making new loans rather than paying dividends. That stipulation was dropped from the final version of the letter.

The letter made public said each bank should “consider the potential impact on its earnings and capital base from current and prospective economic conditions.”

Banks also were warned to “inform the Federal Reserve reasonably in advance of declaring or paying a dividend that exceeds earnings for the period,” according to the letter. Such a requirement has been less strictly enforced in recent years, Shaffer said.

When Citigroup Inc. and Bank of America Corp. sought additional aid after getting $25 billion each in October, the government agreed on the condition that they cut their dividends to a penny a share. The two banks got an additional $20 billion each from the $700-billion program.

Wells Fargo, which took $25 billion of TARP funds, has maintained its dividend. So have Pittsburgh-based PNC, which took $7.6 billion; Minneapolis-based US Bancorp, which received $6.6 billion; and McLean, Virginia-based Capital One Financial, which got $3.6 billion.

Goldman Sachs Group Inc., which got $10 billion of TARP funds, is still paying a quarterly dividend equivalent to 35 cents a share. Morgan Stanley, which also got $10 billion, pays 27 cents a share.

Spokesmen for Wells Fargo, Goldman Sachs, Morgan Stanley and PNC declined to comment. “These funds are being used in a manner consistent with promoting economic growth,” Capital One spokesman Julie Rakes said.

The Fed’s new guidance may provide cover to bank CEOs who know they need to cut their dividends to preserve capital, and have resisted doing so for fear of upsetting shareholders or conveying a sign of weakness to depositors.

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