Spring 2011 : Jumbo Mortgage Products At Conforming Mortgage Interest Rates
For the first time in 3 years, jumbo mortgage approvals are getting easier to come by. Loan guidelines are relaxing and interest rates remain ultra-low.
At least, they’re ultra-low for now.
Reading between the rate sheet lines, however, shows that jumbo lenders are preparing for higher rates ahead. You should, too.
True “Jumbo Mortgage Lending” Returns
The easiest way to explain what a jumbo loan is, is to explain what it isn’t. A jumbo loan is a loan that cannot be insured by Fannie Mae or Freddie Mac simply because of its size.
Fannie Mae and Freddie Mac have strict loan size limits.
In most parts of the country, the loan size limit is $417,000. It’s an amount set by Congress and re-voted upon each year. The $417,000 loan size limit has been the same since 2006. In some counties, however, loan limits range as high as $729,750.
These $729,750 counties are commonly called the “High-Cost Areas” and include Loudoun County and Fairfax County, Virginia; Montgomery County, Maryland; and most of California.
The reason why they get bigger loan limits is because when the economy seized in 2007-2008, most homeowners in High-Cost Areas found themselves without access to mortgage money. Fannie and Freddie were capped at $417,000 loan size, and the jumbo mortgage market had done disappeared.
If you bought a $1,000,000 home, for example, you would have been asked to put down $583,000, or you couldn’t get a mortgage. Most people wouldn’t do that. So, the government created a High-Cost Areas loan program that raised Fannie and Freddie’s local loan limits to as high as $729,750.
Today, these “in-between” loans are known by several names including jumbo-conforming mortgages, super-conforming mortgage, and high-cost conforming mortgages. They are not, however, the same as jumbo loans.
A true jumbo loan exceeds Fannie Mae and Freddie Mac’s local loan limits.
Jumbo Mortgages With Lower Rates Than Conforming
For the most part, jumbo mortgages work just like conforming ones. The approval process requires all of the same things:
- For the borrower, there’s income verification, proof of assets, and a credit score.
- For the subject property, the home must appraise at value and be free of defects.
- For the note, there’s a product, an interest rate and a loan term.
Despite the similarities, there remains a distinct difference between the two. Because Wall Street makes a huge secondary market for them, Fannie Mae and Freddie Mac’s mortgage-backed securities are highly liquid and easy-to-price.
By comparison, the jumbo mortgage secondary market is all-but-nil. It makes jumbo loans harder for banks to price, and “harder” often means more expensive.
It’s why jumbo mortgages tend to carry higher rates than conforming ones. Banks can’t dump their loans on Wall Street at the drop of a hat. Bank pricing has to account for the possibility of holding that loan on the books for a very, very long time.
But that’s not always the case.
In the economic cycle, after the economy has bottomed and growth has resumed, there’s a window during which jumbo mortgages carry lower rates than corresponding conforming loans — specifically for jumbo 5-year ARMs, jumbo 7-year ARMs, and jumbo 15-year fixed rate loans.
We’re in that cycle now.
Jumbo and super-jumbo mortgage rates are beating conforming by as much as 2 percentage points right now, and with fewer loan fees, too. If your jumbo loan rate quote doesn’t look exceedingly low to you, make sure you click here to send me an email right away.
Jumbo Mortgage Rates Poised To Surge Higher
Because jumbo mortgages are priced by banks and not Wall Street, most people think you can’t know where rates are headed next. That’s not exactly true. You can.
Just watch your checking account.
Because of how the most aggressive jumbo lenders hedge their portfolios, when the interest rates paid on your checking accounts starts rising, mortgage rates for jumbo loans are usually right behind.
The two are often correlated so it’s noteworthy that, over the last 60 days, checking accounts pay 38% more interest than before, and rates are now near a 2-year high.
If you want to capitalize on low jumbo mortgage rates, now is the time to act.
Apply For A True Jumbo Mortgage Loan Online
The problem with jumbo mortgages is that it’s tough to find a bank that gives you good rates. The good news, then, is that you’re here, on this website. Waterstone Mortgage does jumbo lending up to $4,000,000 and the pricing is really, really good.
Heck, it has to be. I meet many of my clients online so if my pricing wasn’t the best, I’d be a lonely loan officer, for sure.
No matter what your loan size — from $417,000 to something bigger — if you’re looking for rate quotes, at least click here to send me an email. Include some bullet points from your scenario, and share your current loan terms, if you’d like.
I’ll put together an aggressive jumbo mortgage package for you and you can tell me what you think. I’m sure you’ll be pleased.