Jumbo Loan Rates Never Lower As Government Loan Limits Drop

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If you have been keeping up with the real estate news, you may know that the mortgage loan limits on jumbo mortgage loans set by Congress are about to change. A jumbo mortgage is one that must be eligible to sell to Fannie Mae or Freddie Mac and it exceeds the amount of a conventional conforming limit.  Depending on where you live, the upcoming lower loan limits could impact you. Beginning on October 1, 2011 the mortgage loan limits for homes across the entire country will be $625,500.

Currently, the maximum amount for jumbo mortgage loans is anywhere between $417,000 and $729,750. The maximum limit is determined by a couple factors, including the region of the country in which you live.  Major metropolitan areas, where home prices are higher, today have limits closer to $729,750.

There are many people who will be affected by the new limits. Any homeowner who owns a home valued between $417,000 and $729,750 and wants to refinance is going to be affected by these new limits. There will be tighter credit restrictions and possibly even higher mortgage rates for homes that are valued above the new $625,000 maximum.

Any home buyer who wants to buy a home priced above the new maximum is also definitely going to be affected. Currently, jumbo mortgage loan rates are often lower than traditional mortgage rates and qualified buyers can put as little as 3.25 percent down to purchase the home. But with the new caps, mortgage rates are going to increase and home buyers will need to put down a much larger payment for the home. The down payment requirements could be as high as 20 percent.

Some of the bigger cities with higher home prices will definitely feel the punch. Places like New York City, San Francisco, Miami and Los Angeles where homes are typically priced in the jumbo mortgage loan range will see some effect from the lowered maximums. According to the National Association of Home Builders, nearly 1.4 million owner-occupied homes in more than 200 counties across the county will be valued above the $625,500 jumbo loan limit.

BestJumboRate.Com said that they are reaching out to clients who will be affected to alert them of the new guidelines. Most people simply don�t know about the new limits or the October 1 deadline for imposing the new limits.

Before criticizing the reduction, though, consider this: The Federal Housing Administration, or FHA, raised the limits for a jumbo loan in 2008. This increase in limits was only supposed to be temporary. Since 2008, the higher limit caps have been renewed each year. As of right now, those limits are set to expire on September 30, 2011. It is not like the federal government with taking action to lower the limits; rather, legislative inaction would result in the current limits expiring and reversion to the old limits.

So what does this mean for you? If you are thinking of refinancing your jumbo mortgage loan or taking out a jumbo loan to purchase an upper-end home, now may be the best time to initiate the process. The opportunity to capture a government insured rate that is often .25-.50% lower than a traditional jumbo mortgage loan won't be able if you wait until after September 30. 

Housing in For Long Road to Recovery

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From San Francisco Fed President John Williams: The Outlook for the Economy and Monetary Policy

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20. Some excerpts on housing: 

One of the most important currents holding back recovery has been housing. The collapse of the housing market touched off the financial crisis and recession. In most recessions, housing construction falls sharply, but then leads the economy back when growth resumes. As you well know, that snapback hasn�t occurred this time. Before the crisis, residential investment as a share of the economy was at its highest level since the Korean War. Today, housing construction remains moribund and residential investment as a share of the economy has fallen to its lowest level since World War II.

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22. On one level, that�s not surprising. We simply built too many�in fact, millions too many�houses during the boom and we are still feeling the effects of this overhang. Consider housing prices. From their peak in 2006 until early 2009, home prices nationwide fell by nearly a third. When you exclude distressed sales, prices appeared to bottom out in 2009 and early 2010. New housing starts also appeared to stabilize in 2009, after plummeting some 75 percent during the housing crash. ...

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24. The $64,000 question is when will the housing market finally recover? One daunting challenge for such a recovery is the huge number of homes in foreclosure. Almost 7 million homes have entered into foreclosure since the first quarter of 2008 and some 2 million are still in the foreclosure process. In addition, there is a shadow inventory of homes currently owned by delinquent borrowers. When you add up unsold new houses left over from the boom, homes for sale by owners, foreclosed residences for sale by lenders, and the shadow inventory of houses at risk of distressed sale, you come up with a massive supply overhang.

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26. Over time, more reasonable prices and an improving economy ought to bring buyers off the sidelines and set the stage for recovery. But high unemployment and anemic wage gains are leaving people worried about their income prospects and cautious about buying homes. Also, the dramatic plunge in home valuations since 2006 has made some first-time homebuyers wary about entering the market because of worries that prices might fall further.

These are key points: Usually housing is a key engine of recovery, but not this time because of the massive supply overhang. And looking forward: 

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It�s only a matter of time before we work off the inventory overhang and construction picks up. How much time it takes will depend in part on what happens with foreclosed properties. If we begin making progress on working down the foreclosure inventory, then single-family housing starts could plausibly rise from their current level of about 400,000 per year to an average level of perhaps 1.1 million per year in three or four years, according to research at the San Francisco Fed.⁴ To put this in perspective, such an increase would boost real gross domestic product, or GDP, by at least 1 percent.

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29. ⁴ By contrast, if we can't work down the foreclosure inventory, then a return to normal construction levels could be delayed several more years. 

Jumbo Loan Rates Continue Hovering Below 5%

Mortgage Delinquency continues to be a problem. It is our view that this could take several more years to run it's course. Average days till a home goes from first missed payment to getting listed as a foreclosure is roughly 1.5 to 2 full years in most states. The chart below is showing that over 10% of all mortgages are at least 60 days.

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Here is your jumbo mortgage rate chart as well:

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Show Me The Money

As we have previously discussed the current unemployment rate and poor GDP figures hide the enormous gains of the high net worth and high earners. Cap Gemini has all of the details.

Most of America may be treading water, but the High Net Worth Individuals are getting their piece of the pie.

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Jumbo Loan Strategic Defaults on the Rise

When Tracy Bremmer, director of decision sciences at Experian, talks about mortgage defaults, she has more than reams of data behind her. She has personal experience. She tell a story, embellished slightly but still representative, of a "neighbor" who bought their house near the height of the boom only to see it lose 40% of its value, plunging their mortgage so far underwater it would take years to surface. Then they noticed the house across the street from them for sale for roughly half of what they paid for theirs. So they bought it, and just stopped paying their original mortgage.

This family is semi-fictitious but is not alone. Ethics, morality and possible straight-up savvy aside, we started thinking about these "strategic defaulters" as a newly trending consumer segment, as they tend to become a strange new class of renters:

Data being released later today from Experian will show that in the first half of 2010, an estimated 275,000 people just walked away from mortgages they could afford to keep paying because they had become such awful investments. That adds up to roughly 17% of defaulters. While that figure is down 35% from the first half of 2009, as evidence of a double-dip housing crash mounts, "we expect the incidence of strategic defaulting to go up," said Ms. Bremmer.

Estimates of the number of mortgages under water in the U.S. hover just over 1 in 4 but that could jump to half in the coming years. Recent data from Corelogic suggests that almost 10% of mortgages originated just last year are already in the negative equity range. The Federal Reserve shows average homeowner equity at just 38% down from 61% a decade ago. We could go on, but you get the idea. A lot of home owners are hosed.

These are no deadbeats in a traditional sense. The Experian data show that they are more likely to have had a jumbo loan mortgage, have had excellent credit scores, have had more than one house or investment property, and have a higher than average household income. They also stay current on all their other bills. If you look at the incidence in these charts, the proportion of strategic defaulters keeps going up.

They should be owning and spending like home owners. But they're not, and for up to the next seven years they might have a hard time finding a mortgage while their credit recovers. "As many strategic defaulters as there are," said Ms. Bremmer, "there are many more people who are short-selling. Those people are renting, too."

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For more great information and to contact the team that created the report please visit Experian Decision Analytics

How Low Can Housing Prices Go?

99. As the bubble continues it's long grinding deflation we are seeing a classic 'buyers-strike', the spring buyers haven't appeared despite historically low interest rates and home prices continue to be discounted over asking prices of just 2-3 months ago.

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101. Here is the national home purchase application index. It measures the applications in process to buy a new home. The survey is pretty solid in that about 50% of large lenders are surveyed every week. If this was an EKG, the patient is dying, get the paddles stat!

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105. The spike you see in Q1 2010 is the end of the home buyer tax credits and a major push by the FED to push mortgage rates down. As the tax credits expired on a Federal and state level the number of new buyers started to disappear. Then during Q3 2010 and Q4 2010 we had excellent fixed mortgage interest rates

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This prompted another group of buyers to get an application in and start the home buying process. Then because of inflation, Federal government budget issues, and prospects for a better national economic environment(b.s.), mortgage rates moved back up again from the best levels in history. The amount of inventory that will be coming onto the local real estate market is huge:

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These are foreclosed homes currently owned by Fannie, Freddie and FHA. They may or may not be on the market yet. Some are in need of repair, some are listed etc. As with all goods/services, supply and demand will lead the market to adjust prices. I fully expect much lower(10-25%) prices in some former bubble states. If people are concerned about jobs and unemployment is around 9-10% you can't expect any stability in housing, in the golden state unemployment is 12.3%, ouch.

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114. Now with the recent wallet shock of $4 gas on the household and business budget it's going to be a tough spring selling season. Blockbuster closing hundreds of stores, Borders doing the same it doesn't broadcast confidence to people as they go about their daily lives.

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116. Buyers... remember it's an asking price. Bargain accordingly. Here is your jumbo mortgage rate chart as well:

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Paying More For Most Everything

Today�s must read piece is the WSJ discussion of Inflation:

�The pace of consumer price increases in the U.S. is quickening after being dormant for months. But a tug of war between the prices of goods and the prices of services, playing out beneath the surface, could keep inflation from becoming the worry it is in China, Europe and many emerging markets.�

Prices rose 1.6% in January 2011 vs 2010 � the biggest increase in eight months. The key has been commodities � gasoline, cotton, wheat, coffee, and oil are all higher.

Labor, on the other hand is not. Wages are flat, unemployment is stubbornly high, and hence, prices for Services are flat to lower. That is keeping a lid on inflation.

Hence, the dueling deflation versus hyper-inflation commentaries:

�Soaring commodities costs world-wide are pushing up prices for many goods, while a slowly recuperating U.S. economy, soft housing market and a persistently high unemployment rate are holding down prices for U.S. services.

119. Goods prices were up 2.2% from a year earlier, paced by jumps in food and energy prices, according to the Labor Department�s January consumer-price index, and are rising faster than they did before the recession. But services prices were up only 1.2% from a year earlier, far below the 3.4% inflation rate registered for services between 2000 and 2008.

120. The opposing pull of prices for goods and services could have a big effect on the course of U.S. inflation. Federal Reserve Chairman Ben Bernanke is betting that rising prices for goods like gas and food will not spread into the broader economy. He and many private forecasters do not expect the U.S. to see the kind of rising inflation now plaguing China, India and other parts of the world.

121. Goods inflation has outstripped services inflation for long stretches since mid-2007, something that hadn�t happened since the 1970s. For most of the last 30 years, goods prices had been held down, in part, by cheap imports from low-wage countries like China. But recently, China and other developing markets have become huge consumers of commodities, which is putting upward pressure on American prices for many globally traded goods.�

Well worth reading in its entirety. Inflation must be managed carefully by governments and central banks. I fully expect this will continue to impact mortgage rates especially long term fixed jumbo loans. We have seen them move from 4.875%(best level ever) in the summer to about 5.50% now. 

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Housing Bubble: Winners, Losers and the Aftermath

http://marketplace.publicradio.org/features/anatomy/foreclosure/

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Marketplace has a special report on the housing crisis through the lens of one house that fell into foreclosure. There is an interactive version of the story, and links to audio version and the companion 30-min documentary:

SoCal Connected and the acclaimed public radio show Marketplace have teamed up to take a tough look at the housing market crisis through one Los Angeles home. This special, reported by Marketplace�s Kai Ryssdal, traces the property from savvy investment boom to foreclosure bust and back again. We�ll meet the couple who bought the home low in 2002, improved it, and sold it four years later at almost triple the price; the couple who bought high and lost the home to foreclosure; and the couple who bought it this year at a fraction of the price it sold for in 2006.

126. The story of Lot 354 reflects the lending practices that contributed to the crisis in America�s housing market, how economic forces led to the housing crisis and what the future may hold for both buyers and sellers.

Listen to the radio program

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Home Values Continue To Decline

Data through November 2010 shows negative annual growth rates in 17 of the 20 MSAs and the 10- and 20-City Composites compared to what was reported for October 2010.

The 10-City Composite was down 0.4% and the 20-City Composite fell 1.6% from their November 2009 levels. Home prices fell in 19 of 20 MSAs and both Composites in November from their October levels.

Only four regions � Los Angeles, San Diego, San Francisco and Washington DC � showed year-over-year gains. Eight markets � Atlanta, Charlotte, Detroit, Las Vegas, Miami, Portland (OR), Seattle and Tampa � hit their lowest levels since home prices peaked in 2006 and 2007, meaning that average home prices in those markets have fallen even further than the lows set in the spring of 2009.

Your CS Housing chart round up, click for even larger graph:

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Mortgage Rates Rise Across the Board

Word of the Week:

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hesitates3rd person singular present of hes�i�tate (Verb)

1. Pause before saying or doing something, esp. through uncertainty.

2. Be reluctant to do something.  More �

Merriam-Webster

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Seems a lot of conforming mortgage folks missed the low 4% rates and never locked. He who hesitates loses. The price of borrowed mortgage money has risen about .50% in the last few weeks. We have seen increases especially on fixed jumbo loan products and fixed conforming government backed(taxpayer). This is pressuring home shoppers especially. We have heard from a lot of realtors that the recent rapid rate increases has resulted in clients waiting or being forced to downgrade or offer less on the property. It really is about the payment for all but the top 1-2% of earners. 

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For a client borrowing a cool million on a jumbo mortgage, a .50% rate move is not insignificant. From 5% on a 30Y Fixed Jumbo Loan in late November to the first week of the new decade at 5.50% for a very well qualified borrower, moves the payment from $5368 to $5677. Long run that is over 100k in additional interest cost. Higher or lower from here? Biased higher. Nothing more concrete as Mr Jumbo Mortgage's crystal ball is in for warranty repair in a small Turkish village. Great Charts Below:

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Job Market Improvement Boosts Jumbo Loan Rates

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ADP reports:

Private-sector employment increased by 297,000 from November to December on a seasonally adjusted basis, according to the latest ADP National Employment Report� released today. The estimated change of employment from October to November was revised down but only slightly, from the previously reported increase of 93,000 to an increase of 92,000.

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147. This month�s ADP National Employment Report suggests nonfarm private employment grew very strongly in December, at a pace well above what is usually associated with a declining unemployment rate. After a mid-year pause, employment seems to have accelerated as indicated by September�s employment gain of 29,000, October�s gain of 79,000, November�s gain of 92,000 and December�s gain of 297,000. Strength was also evident within all major industries and every size business tracked in the ADP Report.

This latest report came in very strong vs estimates of about 100k new jobs added in this period. This has resulted in an small early morning rally on Wall St. Stocks  are slightly higher but the biggest change is a rise in the 10Y Treasury from 3.33% to 3.45% as of 12:11 EST. We have seen a boost in mortgage rates across the board. Market based jumbo loan programs are up about .125%-.25% from yesterdays best levels. The plane is boarding don't be late before the captain shuts the door on 5% fixed jumbo loan rates.  

Jumbo Loan Rates: Was 2010 the Lowest?

Well, the final figures for 2010 are in and we may very likely have seen the best jumbo loan rates ever. But time will tell. If the economy double dips into a recession or the moon falls to earth causing epic panic then we may go back down to the sub 5% range for very well qualified clients. But the strong winds are blowing the sails of global economic recovery with the US projected to grow 2-3% in 2011. A rising economy will continue to push jumbo mortgage rates up. Mr Jumbo Mortgage advises to lock anything in the low to mid 5% range given the current environment. As in all things this could change in a minute. Contact our office anytime we can be of service here.

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