There’s a primary reason that the higher end real estate market is languishing. And there are answers. More than five months after the Obama administration launched its housing rescue plan, there are many lenders modifying mortgage loans to make them more affordable. However, there’s one demographic that cannot derive the benefits of the Obama administration’s housing rescue plan. Under the Obama housing rescue plan, homeowners with loans above $729,750 aren’t eligible for mortgage modifications, although lenders may make modifications as they choose.
Homeowners with higher-price loans don’t qualify for mortgage modifications under the Obama plan. Low interest rates are unavailable if they try to refinance. And finding a buyer who can get financing takes far longer than for lower-price homes, because banks want as much as 30% down and six months of mortgage payments in reserve.
“We need to have a market recovery in all segments,” says Lawrence Yun, chief economist with the NationalAssociation of Realtors (NAR). “If the high-end market weakens, those in the middle have to reduce prices.” Even though the number of homeowners with higher loans is small relative to the entire market, Yun says, “All of MiddleAmerica is undoubtedly impacted.”
JUMBOS AND SUPER-JUMBOS
Bigger loans, known as jumbo loans, come in three “flavors”
Loans up to $417,000 are considered “conforming,” and can be sold to mortgage-finance giants Fannie Mae and Freddie Mac, which also guarantee them when they resell those mortgages to investors. complex.
Loans between $417,000 and $729,750 are “conforming jumbo,” and loans above $729,750 are “super-jumbo.” Fannie and Freddie back only conforming jumbos (conforming amounts can vary depending on location).
Lenders are skittish about making loans above the amount that Freddie and Fannie will guarantee. If a jumbo loan borrower defaults, it’s harder for a bank to quickly sell a higher-end foreclosed property. And since Freddie and Fannie don’t buy non-conforming jumbo loans, there’s less of a secondary market for super-size loans.
States with the highest percentages of jumbo mortgages include California, but keep in mind that in some desirable areas, $500,000 may buy only a modest single-family house or condo.
CAUSE AND EFFECT
Sales of higher-price homes have slowed dramatically, driving the supply of homes for sale above $750,000 from 18.7 months in 2007 to 41.1 months in 2009, according to NAR. With adjusted home values, borrowers who took out jumbos a few years ago are finding they can’t refinance, and some of these mortgages are moving into default. The number of jumbos 90 or more days delinquent reached 4.83% in March 2009, up from 1.68% in March 2008, says First American CoreLogic. From July 1, 2008, to July 1, 2009, nearly 26% of homes on the market for more than $1 million have had price reductions, and the average reduction is 13% off the asking price, according to real estate information provider Trulia. Homes on the market for less than $1 million have seen an average reduction of 9% off the asking price.
Generally, those taking out or refinancing jumbo loans must pay higher interest rates than other borrowers. Rates on jumbos are hovering around 6%, vs. 5.20% on a 30-year, fixed conventional loan (the average rate for a 30-year fixed rate jumbo loan was 6.91% last week, according to a survey by Bankrate.com, compared with 5.7% on a conventional 30-year fixed rate home loan). Most banks require down payments of 20% to 30%, depending on the size of the jumbo. Many banks have gotten out of jumbo lending because of the lack of a secondary market. Those who do make jumbo loans are requiring some borrowers seeking to finance 80% of their home purchase keep 40% of the total loan value in a reserve account. Some want six months total debt service in reserve.
IS HELP ON THE WAY?
Real estate groups such as the NAR are pressuring Congress and the Obama administration to increase the jumbo loan limits that Fannie and Freddie will guarantee and make them permanent. Current amounts were raised in 2008 and are set to expire Dec. 31. They also want the Federal Reserve to buy jumbo-backed securities because Freddie and Fannie can’t. The hope is that Fed purchases would create enough of a secondary market for these loans so banks would be more open to lending higher amounts.
HERE’S YOUR (MORTGAGE) REALITY THROUGH OUR AFFILIATE
We work closely with Ryan Gray of Cal Metro Mortgage and consider him among the best. Ryan tells us that he has closed several Jumbos just this past week and has been doing so routinely based upon the following (of course, subject to market change): Purchase or Rate Term Refinance of primary residence or second home requires 20% down payment up to a loan amount of $1.1M. Loan amounts between $1.1M and $5M require a minimum 25% down. If the borrower can secure an outside 2nd Trust Deed, the combined-loan-to-value allowed amount is 90% up to $1.1M and 80% from $1.1M – $5M. Depending upon the size of the loan amount, 6 to 2 months of reserves are required (Principal, Interest, Taxes, Insurance). Credit minimum score requirements range from 680 – 740 depending upon size of loan and loan-to-value.
AND HERE ARE TWO SPECTACULAR PALM SPRINGS AREA LUXURY HOMES WITH FINANCING ATTACHED FOR TWO FORTUNATE BUYERS!
Per our seller of 18 Boulder Lane in Sterling Estates, this Assumable Jumbo Loan is based on the last 12 months of the treasury bill rate divided by 12 and plus 1.85–currently approximately 3.111%. There is about 25 years left on the loan. It will cost the buyer 1 point to assume and they will have to qualify with full documentation. They have the option of paying a 30 year amortization, a 15 year amortization , or a minimum payment or interest only whichever is greater (that is currently the quoted payment). Each month they can decide which WHICH to pay. The average of the 7 years has been less than 4% and the highest 1 month has been is 6% (when interest rates were the highest).
138 Loch Lomond Road in Mission Hills Countrty Club also has a way for the buyer to navigate around the traditional lenders. Our seller will consider financing up to $1 Million for qualified buyers.
ARE YOU THE
SAVVY BUYER FOR EITHER OF THESE SHOWCASE HOMES?
(Some information sourced from article by Stephanie Armour, USA TODAY)
