As we draw nearer to the 4th anniversary of that event – a memorable one for this writer – jumbo rates have become more readily available and become relatively competitive again. Buyers planning a move up into jumbo territory, and borrowers who have been locked out for the past few years because of the jumbo market dysfunction should consider now a good time to revisit their situation.
By the time the greater economy was into it’s full-blown panic in 2008, the mortgage industry had already been in the doldrums for a year. A tremendous backpedaling of lending guidelines was well-underway, and the marketplace for jumbo money – then any loan above 417k, no matter what the location – was essentially shut down.
Jumbo rates shot up based on the seizure of liquidity in that marketplace. Banks were not willing to lend without a serious premium because the private, wall-street fueled mortgage marketplace was defunct. The demand went to zero, very few lenders wanted to supply the product, and those that did charged a shelving premium knowing that they would need to sit on the investment indefinitely. This was not the business model preceding the meltdown.
First Steps Toward Jumbo Relief
The Economic Stimulus Act (Feb 2008) and then the Housing and Economic Recovery Act (July 2008) were a couple of economic ‘smokejumpers‘ that helped push the conforming/jumbo breakpoint up from 417k to as high as 729,750, depending on the median home prices by area. For the San Francisco Bay Area, all counties were temporarily bumped up to the max of 729,750. This opened up quite a bit of the formerly-jumbo marketplace, but left anything from 730k and up locked out in the frigid jumbo market.
Eventually, more jumbo product started to appear, and at mildly more competitive prices. Traditional 30 year fixed rate loans were essentially non-existent however, since the banks making jumbo loans did not want to commit money over such long time frames. Instead, they offered more competitive pricing with shorter term scenarios, like 3 and 5 year fixed rates.
Over the past year or so, we’ve seen some 30 year money show up, but with so few suppliers, the terms often just weren’t quite competitive enough. Either the rate was at too big of a premium over non-jumbo (“conforming”) loan rates, or the reach was restricted to low percentages of the home’s value, or the guidelines were too cumbersome to qualify for.
New Life In Jumbos
But in the last few months, jumbo product has begun to show up in the marketplace. As the private secondary market begins to show signs of life, originating lenders are showing an appetite to get back out to the consumer to deploy some capital. With increased supply, we are seeing increased competition on terms.
While a recent bond market rally has brought conforming mortgage rates to their 2011 lows, the jumbo rates have fallen farther as this same bond market activity has been coupled with increased competition.
Jumbo rates today are better than where they were when the market seized up in 2007. You can reach above 1MM in borrowed money with just 20% equity.
Quite a few would-be jumbo borrowers have been stuck on the sidelines waiting out the return of this market. While being held back, they’ve also watched their values decline. But for the many jumbo borrowers who were deep in equity to begin with, this represents as good a time to look at jumbo financing. And for move-up buyers looking to trade-up while prices are down, this is the environment to transact in.
If you’d like to explore this market in greater detail, drop me a note in the form below.