Jumbo Loans Making a Comeback

By:
Kirk Haverkamp - MortgageLoan.com

Jumbo loans are making a comeback.

After practically disappearing during 2009, jumbo mortgages are again being offered by lenders, although cautiously. Even so, that’s good news for upscale home shoppers – and great news for homeowners who already have jumbo loans and are looking to refinance.

 

Jumbo mortgages were essentially missing from the great mortgage frenzy of 2009, when mortgage interest rates hit rock-bottom levels and borrowers flocked to refinance their home loans. Many buyers also jumped in to take advantage of the combination of low rates and home prices, as well as a tax credit for first-time buyers.
 
But this activity was almost entirely limited to the lower and middle sectors of the market, the conforming” loans backed by agencies like Freddie Mac and Fannie Mae whose support gave lenders the confidence to keep making those loans following the collapse of the subprime mortgage market. Without that support, jumbo loans were a far riskier proposition.
 
The market in jumbo loans also didn’t benefit from the rock-bottom interest rates spawned by the Federal Reserves’ massive purchases of mortgage-backed securities – because the securities the Fed purchased were made up almost entirely of conforming loans. With Fed backing, interest rates on conforming loans hit record lows. Without Fed or agency backing, jumbo loans were relatively risky and expensive – and few lenders cared to get involved.
 

Interest rates, down payments easing

 
Lately though, that’s been changing. Interest rates on jumbo mortgages have been declining, to around 5.75 percent for a 30-year fixed-rate loan in some surveys in February, their lowest in four and a half years. Although still running roughly three-quarters of a percentage point higher than comparable fixed-rate loans, that’s still considerably better than the roughly 1.75 percent gap of six months before.
 
Lenders are also easing up their lending requirements on jumbos. Whereas in mid-2009, many were requiring either 25 percent down for a home purchase or 25 percent equity on a jumbo refinance, that has generally been rolled back to 20 percent by most lenders and some will even allow as little as 10, even less on an FHA or VA jumbo.
 
Stated income, or “no-documentation” loans are even showing up again, although under far more rigorous terms than before. Some lenders are reportedly approving such loans, which traditionally have been popular with the self-employed, for borrowers who can put up a 40 percent down payment or refinance with a similar equity.
 

Compare offers from several lenders

 
One thing to remember when seeking a jumbo loan, either for a home purchase or refinance, is that terms can vary significantly from lender to lender, more so than with conforming loans. This is partly due to the fact that there is currently little or no secondary market for jumbo mortgages, so lenders simply keep them on their books and make their earnings off the interest, rather than selling them to investors.
 
This makes it particularly important to shop around and compare offers when seeking a jumbo loan. In a situation like this, you may want to consider going through a mortgage broker who is familiar with the market and can help you find the best lender to meet your needs.

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