Return of the Jumbo Mortgage… for Some.
One casualty of the mortgage crisis that we’ve covered here before is the jumbo mortgage — loans over $417,000 in some jurisdictions and over $729,000 in others. If you are (or were) a millionaire with a big house and a big mortgage, chances are it was a jumbo. In the mortgage bubble days jumbos generally carried a half-percent interest rate premium over conventional (non-jumbo) loans. Then all heck broke loose and jumbos disappeared entirely only to reappear recently, though after a somewhat different fashion.
Lenders are leaping into the jumbo mortgage business and offering aggressive rates — easily as aggressive as in the bubble days in terms of rate premiums. But there’s a catch. The catch is that jumbo mortgages today are a lot harder to qualify for than they used to be.
Want a jumbo loan? Then be ready to make a 30-40 percent down payment on your new house. This immediately eliminates refinancing most of the older jumbo loans in California, for example, where more than half of the mortgages were already of jumbo size. If your jumbo mortgage is underwater don’t expect to be able to refinance — or even to apply for a mortgage modification, since the Obama plan, for example, doesn’t even cover jumbos.
The reason lenders are jumping into jumbo mortgages is because under these terms it is a great business. Wall Street still won’t touch jumbos for securitization, but that doesn’t matter because the banks are tending to hold these loans in their own portfolios. And for good reasons: 1) the lenders have plenty of equity down so the properties are worth more than the loans against them; 2) it costs little more to foreclose on a jumbo than on a conventional loan so for the lender the downside is the same while the upside is much larger, and; 3) under current Fed policy the banks are making these 6-percent jumbos with 0.25-percent money — a fantastic spread by historical standards.
So welcome back jumbo. Too bad most of us can’t qualify.