Fannie Mae and Freddie Mac

Jumbo Mortgage Loans on the Rise

April 14, 2009 - In the midst of home market anxiety, but also record low mortgage interest rates, the jumbo mortgage may be making a comeback.

As the credit crisis deepened over the last year, many homebuyers bypassed jumbo mortgages, or found it much more difficult and expensive to obtain them. But now, some banks are aggressively pricing their jumbo mortgage programs, offering deals to homebuyers in high priced markets.

Jumbo mortgages are those considered too large to be bought by Freddie Mac or Fannie Mae. These government-sponsored entities have established a “conforming loan limit” of $417,000 in many parts of the country. In high-cost areas of the U.S., the jumbo limit has been set as high as $729,750.

Bank of America is one bank that recently began pushing their jumbo mortgage loan program. They offer a 30-year fixed-rate jumbo mortgage with interest rates in the high 5% range. The average 30-year fixed-rate jumbo mortgage averaged 6.5% for the week ended March 27 -- the lowest since May 2007, according to HSH Associates, a publisher of consumer loan information. On Oct. 31, the average rate on a 30-year fixed-rate jumbo mortgage was 7.9%, according to HSH data.

Experts believe more banks and lenders may soon jump on this trend, offering jumbo loans for less. GMAC has also begun pricing their jumbos for sale, with rates in the high 5% to low 6% range. For 5-year adjustable-rate jumbo mortgages, the range is in the low 5%.

Why now? Lenders have less institutional buyers for their jumbo loans in today's climate, meaning they must keep the loans they offer on their books. While banks were hesitant to loan out when credit and cash were tight, banks have more money and resources today. This is due to many things, including consumers taking money from the stock market and placing it in safer investments, assistance from the federal government, and increased refinancing , giving banks more liquidity. 

While jumbo loans are increasingly available and pushed by banks, borrowers still must jump through some hoops. Jumbo programs will vary highly from bank to bank, and location to location, requiring some careful research. Borrowers should also determine if they truly need a jumbo loan – with home prices falling and loan limits rising, many homebuyers fit into and should get conforming mortgages. Borrowers should also remember that qualifying for a jumbo loan would still require a higher credit score and down payment.

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