condition of the mortgage credit markets. As you are surely aware, we are
back close to record low rates on conforming Fannie Mae, Freddie Mac, and
Government loans, courtesy of the recent announcements by the Federal
Reserve. However, there is some more good news that is not getting the
attention it deserves.
Recently there is more and more evidence that banks are beginning to dip
their toe back into the Jumbo mortgage market. A handful of Jumbo mortgage
investors are making announcements they will be re-entering the market with
new loan products in the near future. In addition, investors currently
offering Jumbo Mortgages are becoming more competitive on pricing. These
loans will require excellent borrowers with proof of income and assets, but
this is an excellent sign. Currently Jumbo 30 year fixed mortgages are
priced about 1% over a comparable conforming 30 year fixed loan. Look for
that spread to improve in the weeks and months ahead.
In the mean time, rates on Jumbo Adjustable Rate Mortgages (ARMs) are
excellent. As of the week of 3/23/09 rates on a 5/1 Jumbo ARM are slightly
over 5% w/ 1 pt, depending on the specifics of the transaction. That is
actually a little better than conforming 5/1 ARM pricing. Rates on 3/1
Jumbo ARMs are at or slightly below 5% with 1pt, quite a bit better than 3/1
ARMs at a conforming loan amount. Keep in mind; with most Jumbo borrowers
the risk tolerance is different than First Time Homebuyers and other buyers
with more limited income. There are ways to build a mortgage strategy for a
Jumbo client using an ARM that, while perhaps not ideal, are effective and
not dangerous or financially irresponsible. Given that we have some high
end listings that are 40% or more below their peak value, this presents some
good opportunities for high end clients.
HERE IS THE MOST IMPORTANT PART OF THE STORY.
Improving Jumbo pricing, regardless of loan product, is an important sign
the credit markets as a whole are beginning to thaw. For the last year and
a half almost all of the mortgages originated in the entire system were
securitized and brought to the secondary market only with the help of
government agencies - Fannie/Freddie, FHA, VA, etc. Jumbo loans are not
packaged and securitized by government controlled agencies, so competitive
pricing on these products means PRIVATE money is beginning to make its way
back into the system. This is tangible proof that the healing process is
underway - one step in a long road, but significant.
Sr. Mortgage Consultant, CMPS