Wednesday, November 17, 2010

Jumbo mortgages

A jumbo mortgage is a home loan that’s too big (in dollars) to be sold to government backed agencies (Fannie Mae, Freddie Mac). The upper dollar limit for jumbos varies geographically but the general rule of thumb is a loan larger than $417,000 is a jumbo.

It seems to me that people who have money continue unaffected when there’s a deep recession in the American economy. I always joke: people with money are always economically safe, the truly poor can rely on welfare and charity, and the working & middle classes buckle down during recessions because they know they’re the ones who are really going to take a beating.

Be that as it may (or not)…   In an odd twist on normal, jumbo mortgages have suffered during the Great Recession. Usually they account for 18% of the real estate market, but according to a new Wall Street Journal (WSJ) report, jumbo mortgages were only 5% of the real estate mortgage market in 2009 and 2010.

Interest rates for jumbo mortgages have been high too, but are now back down to earth. The WSJ reports the average jumbo rate through the week ended Oct. 29 was 5.11%, down from about 6.14% on Jan. 1, 2010

It’s my experience that people who can afford to take out a jumbo mortgage expect to get a mortgage easily, with little trouble and few questions about their financial life. Beware, the New Normal is different, even if you’re wealthy. My favorite brokers and the WSJ story report that mortgage underwriting continues to be strict: Borrowers still need excellent credit profiles and must provide complete documentation and verification of income, unlike several years ago. Down payments of 20% to 40% typically are required.

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hat tip Relator John Wake for the inspiration and source article for this post