Although legislation earlier this year increased the conforming loan limit to as much as $729,750 in high-cost areas, the mortgage market now has three primary types of loans. Loans up to $417,000 are considered “conforming,” loans between $417,000 and $729,500 are “conforming jumbo,” and loans over $729,500 are “super-jumbo.” Although conforming mortgage rates are at 50-year lows, jumbo loans in general continue to remain costly.
“Lenders are keeping credit standards stringent for borrowers at the higher end of the market, and are reluctant to make jumbo loans,” said NAR Chief Economist Lawrence Yun. “The interest rate spread between 10-year treasuries and jumbo loans has also increased, making jumbo loans much more costly than has previously been the case. Many people believe that the jumbo market is for the very rich, but in many areas of the country, middle-class families need these loans to buy a median-priced home.”
States that have the highest percentage of jumbo mortgages include Hawaii (43 percent of all loans are above $417,000), California (41 percent), the District of Columbia (30 percent) and New York (22 percent). In eight more states, jumbo mortgages comprise 10 percent or more of all loans in those states (New Jersey, Maryland, Massachusetts, Virginia, Connecticut, Washington, Nevada and Florida).
“Realtors® are telling us that some lenders are treating jumbo loan buyers who have very high credit scores and a substantial downpayment as higher risks than conforming loan buyers who have lower credit scores and less money for a downpayment,” said Yun. “As a result, more buyers of high-priced homes are resorting to cash purchases, while the bulk of potential buyers remain sidelined and unwilling to take out mortgages that carry interest rates much higher than those on conforming mortgages.”
The resulting increased inventory of homes for sale has already doubled defaults from one year ago and will hamper a broader housing market recovery, which in turn will limit economic recovery. This also affects refinancing activity. “The inability of homeowners to refinance their jumbo loans is holding back potential consumer spending for the overall economy,” said Yun. “If they had the opportunity to refinance into historically lower mortgage rates, many current jumbo mortgage holders could save $6,000 to $15,000 in annual interest costs.”
Yun will discuss the research in detail tomorrow during the Real Estate Services Forum, “Fixing the Jumbo Market.”
To resolve these issues in the jumbo mortgage market, NAR advocates that Congress and the administration make permanent the current rules for determining limits that apply in 2009, use the Term Asset-Backed Securities Loan Facility (TALF) to buy jumbo loans, and increase lender competition by loosening warehouse line of credit. Realtors® will be meeting with legislators and policymakers this week to discuss these and other initiatives that will help stabilize the housing market and help lead to a quicker broad economic recovery.
Mark Fuller is an Expert Luxury Home Buyer's Representative Spcializing in the sale and marketing of Luxury Homes in the Houston Texas area. He can be reached at the following places:
Email: Homes@markfuller.net
Direct Office - 713-470-2161
Web: http://www.luxuryhomeshoustontexas.com/