Luke Strawn




What makes a loan a Jumbo?

Jumbo loans are classified as a mortgage that is above $417,000 in most areas of Texas. Before the shakeup in the mortgage industry that was the limit for all of the US. So if you lived in many parts of the East or West coast, a high percentage of the mortgages were in the Jumbo category. In 2008 Fannie Mae/Freddie Mac put increased the limit in “high cost” areas. Currently in many parts of California you can get a conventional loan for over $700,000. This is all based on the median house price in a given area.

A quick history of Jumbo Mortgages

Any loan that is not insured by Fannie, Freddie, HUD, or VA is considered a non-conforming or portfolio loan. That means that the lender is holding that loan in their portfolio and it is not backed by a government entity. Up until 2007 many different loans were included in the term non-conforming loans. This included Subprime, Alt-A, and Jumbos. These loans were packaged up, securitized, and sold on Wall Street. In many cases there would be twenty-five to thirty percent of jumbo loans in these packages, the rest were subprime loans. When everyone came to the realization that many of the subprime loans were over-leveraged or non-performing, then the jumbos were unfairly thrown into the same category.

Then the credit crunch came along. Most lenders and banks began to horde cash and not loan money. Subprime and Alt A loans were gone almost overnight and jumbo loans were not backed by any government entity. So they had a similar fate. While many of the subprime loans were done with 0 down payment and poor credit, most jumbo loans still required a 5 to 20 percent down payment and above average credit. Currently the default rates on jumbo loans done in the last 5 years are lower than almost any other type of loan done in the same period. However because the investors that bought jumbo loans have been holding on to their cash, the market for those loans has been almost non-existent for the last 18 months.

For the last 10 years jumbo loans required a bigger down payment and carried an interest rate from .25% to .50% higher than a conventional loan. That all changed in 2008, for the few lenders that would still buy a jumbo loan they were charging between 1.5% and 2% more than conventional loans. This has created big problems on the housing market in the upper end of price ranges. Because of this short supply and expensive financing the luxury home market has been reliant on buyers that could pay cash for these properties. That limits a large segment of potential buyers.

Current Jumbo Loan Market
However things have started to loosen up, some lenders are realizing the hole in the market and are starting to finance jumbos again. Currently for some lenders Jumbo loans are .75 to 1% higher than a conventional loan, which is a huge decrease from earlier in the year. 20% Down-payment and good credit are a must.

Mary Ny




Fannie Mae was chartered in 1938, as the Federal National Mortgage Association (FNMA), with the responsibility of creating a secondary market for home mortgages. It operated under direct federal control. In 1968, the Federal National Mortgage Association was partitioned into two separate entities- one wholly owned by the government and known as the Government National Mortgage Association (Ginnie Mae), and the other to retain the Federal National Mortgage Association (Fannie Mae) name. It was privatized by legislation enacted in 1968 and became fully private in 1970.

Fannie Mae (along with Freddie Mac) sets the limit each year on the size of a conforming loan based on the October to October changes in mean home price. Mortgages above this limit are considered jumbo and super jumbo loans because Fannie Mae and Freddie Mac only buy conforming loans to repackage into the secondary market, making the demand for non-conforming loans much less. Thus, interest rates for jumbo and super jumbo loans are higher than for conforming loans.

According to the Office of Management and Budget (OMB), borrowers see mortgage rates 25-50 basis points lower because of what Fannie Mae and Freddie Mac do. This is reflected in lowered interest rates of up to a half percentage on each individual homebuyer’s mortgage, which translates to lower payments and increased consumer cash flow for other purposes. Fannie Mae and Freddie Mac also were the agencies that recommended that FICO scores be used in mortgage lending. Now, FICO scores are the mortgage industry standard for originating conventional loans, adjustable rate mortgages (ARMs) based on various prime rate indices, jumbo loans and 2nd home purchases as well as the popular cash out mortgage refinance loans.

Today, Fair Isaac estimates that more than 75% of all mortgage originations in the U.S. involve the FICO credit score. FICO scores are being used in almost every sector of the nation’s economy, and largely determine whether or not you will be approved for credit (including mortgage loans), what interest rates you will pay and what loan terms are available to you. This is why it is important to maintain a high FICO. But, if you’re a homeowner who’s had credit issues in the past, a timely mortgage refinance or home equity loan (second mortgage) for debt consolidation can help raise your score substantially and save you a lot of money.

dre_gh


I currently work in a distribution center, and i have a bachelors in economics and psychology. I am interested in becoming a mortgage loan officer so i took a 24 credit hour course in residential mortgage lending but unfortunately i haven’t been able to find a job because i do not have any mortgage or lending experience. What else should i do to achieve my carer goal?

Tuan


mortgage tax is the same as property tax but mortgage tax is pay to the bank because you borrow the mortgage loan?

Thank you.

the rock




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Bryan Smith


I built a house in 2008 but have not been able to close on the home and secure a mortgage. The mortgage companies I have spoken with tell me that until my previous home is sold I will have to continue with a construction loan and a very high payment. Does anyone have any advice?

buad0118


I am going to bid on a house at foreclosure and it has a 1st mortgage of $280K and a second of $70K. The lender on the first two mortgages is Decision One Mortgage. The lender at foreclosure is Countrywide. Does this mean that if I buy this house at foreclosure that I will own additional money to the second mortgage or just the first mortgage and back taxes?

Robert Hyder




As the housing crisis broadened, jumbo mortgages predictably became harder to obtain. Already considered high-risk mortgage loans before the credit crunch began, jumbo mortgage rates climbed to excessive limits. The recent drop in conforming mortgage rates has also had an impact on jumbo mortgage rates.

Jumbo mortgages, as they are commonly referred, are non-conforming loans that are above the industry standard for conventional conforming loans that can be bought by Fannie Mae or Freddie Mac. The industry standard loan size that can be purchased by these two government-sponsored enterprises (GSEs) on a 1-unit property is $417,000, but can go as high as $729,750 in high-cost areas on the continental United States and $1,094,625 in high-cost areas in Alaska, Hawaii, Guam and the U.S. Virgin Islands.

A small number of prominent lenders recently began announcing jumbo mortgage rates in the low-to-mid 5% interest range. Industry experts expect more lenders to join in on this practice in the very near future.

At their peak, jumbo fixed rates reached almost 8% at the end of October 2008. Today, some mortgage lenders are being extremely aggressive with their jumbo fixed-rate mortgages, pricing as low as 5.25%. On a $1 million loan size, that could mean a savings of over $1,800 on a monthly mortgage payment.

Because mortgage lenders no longer have buyers for the jumbo mortgage loans that they approve, they are required to keep them in their portfolios. Since consumers are now being especially cautious with their money, they are no longer investing in the stock market and are putting it into much safer and conservative investments, such as savings and money market accounts. As a result, banks now have more money to lend.

Ultimately, when money comes in the front door, banks are then sending it out the back door as a mortgage loan. In addition, when homeowners are refinancing their conforming mortgages due to the record-low interest rates, banks are afforded more liquidity to offer jumbo mortgage loans.

Each lender will have different requirements than the next. Because there are no buyers for jumbo mortgages, each lender creates and maintains their own guidelines and pricing before placing it in their portfolio. A slow down in jumbo originations indicates a tightening of requirements and an increase in rates. Consequently, these extremely low jumbo mortgage rates may not be available for very long.

Die Bart Die


Our realtor advises that only buyers with cash in hand can buy foreclosed properties at auction. There is a technical challenge buying if you need a mortgage as you have to be in contract to be able to get the mortgage approved. Is this true or is there a valid way you can get a mortgage and bid on a foreclosed property at auction?

CL Haehl




There are a few basic concepts one should know when looking into refinancing a mortgage after a bankruptcy. Most importantly, you need to know the two different types of personal bankruptcy that you can declare.

Chapter 7 Bankruptcy, often called “straight bankruptcy”, is an attempt for someone financially overextended to liquidate most of their assets to satisfy creditors, keeping only a few personal assets needed for the basic necessities of life such as an economical car, personal clothing, etc.

In Chapter 13 Bankruptcy, your assets are not liquidated. Instead, you come to an agreement with an appointed trustee where late charges and other penalties are eliminated and you start a payment plan to repay much of the debt owed. This process can take over a year or two, but will allow you to retain belongings (and property). Also, it is looked at more favorably by lenders because you are attempting to repay your debts, not just write them off. Lenders will look at both the date the bankruptcy was filed and when it was discharged.

A Chapter 13 Bankruptcy “buyout” is a refinance loan, taking out a new loan to cover the existing mortgage and some or all of the other debts. This is basically considered a “cash-out” refinance. Most Chapter 13 Bankruptcy refinance loans are limited to roughly 85% of the value of your home.

When refinancing out of a Chapter 13 Bankruptcy, or soon after a Chapter 7 or Chapter 13 Bankruptcy, you will almost certainly be working with a sub-prime or “non-prime” lender. These lenders specialize in helping borrowers with blemished credit histories. Often, borrowers refinancing near the time of a bankruptcy will seek the assistance of a mortgage broker, many of whom have experience with this type of loan. If possible, it is best to wait at least two years after the discharge of your bankrupty to refinance your mortgage. This will help you to receive a better interest rate. Start now to pay your bills on time and in full. This will help to repair your credit and give you even better chances of a lower rate.