Spring is in the air – for the jumbo mortgage market. With last week’s announcement of the first securities sale backed by jumbo loans in two years, there are encouraging signs that high-value loans are becoming easier to obtain.
High-end buyers and homeowners looking to refinance were largely shut out of last year’s low-rate bonanza, when rates on conforming loans fell to all-time lows. But with interest rates still at very attractive levels, it looks like they may yet have a chance to climb on board.
Jumbo mortgage loans, of course, are those that are exceed the limits set for conforming loans, which Fannie Mae or Freddie Mac will support. Those limits range from a general limit of $417,000, up to as much as $729,750 in high-cost areas. Since they’re not backed by Fannie Mae or Freddie Mac, they’re considered riskier than conventional loans.
Jumbo rates under 6 percent
The average interest rate on a 30-year fixed-rate jumbo loan is presently just under 6 percent according to Informa Research Services. That’s down from about eight percent within the past year, assuming you could even qualify for the loan. Some lenders are even lower – Wells Fargo is presently listing a 30-year fixed rate as low as 5.5 percent for current customers, and CitiMortgage, the home lending arm of Citigroup, recently cut its rate to as low as 5.6 percent.
Citigroup has been a major figure in the move toward making jumbo loans more available. It was behind the recent mortgage securities sale, handled by Redwood Securities, which reportedly involved $222 million in securities backed by jumbo mortgages at an average value of $933,000.
Securities sale a turning point
As the first sale of jumbo mortgage securities in two years, the move is significant, because lenders typically rely on selling the mortgages they make to free up additional capital, rather than keeping the loans on their own books.
Citigroup is making the move at a time when it sees renewed opportunities in the jumbo mortgage market, according to CitiMortgage CEO Sanjiv Das.
"We are beginning to see a lot of interest in the jumbo market," Das told Reuters "We want to demonstrate that Citi is a leader in jumbo mortgages and we believe that end of the market has been underserved."
Qualifying may still be a challenge
Still, obtaining a jumbo loan may still be a challenge even for seemingly well-qualified borrowers. The Wall Street Journal reports that lenders are demanding credit scores of 740 and above, with minimum down payments of 20 percent or more. Some lenders reportedly require down payments of as much as 30 percent to 45 percent for loans in excess of $1 million.
That’s not likely to change until more action is seen in the market for jumbo mortgage securities, which will provide lenders with more capital to make loans, as well as taking some of the risk off their hands. And for that to happen, the investors who buy mortgage securities will have to become more confident that jumbo mortgages are a reliable investment.
Presently, most lenders who issue jumbo mortgages are still keeping them on their own books. This means that, generally speaking, only the biggest lenders who can afford to do so, such as Citi, Wells Fargo and Bank of America, are doing so. However, there are signs that some smaller lenders, including credit unions, are beginning to move back into the mortgage as well.
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