Is Your Jumbo Mortgage Loan Adjusting? Have a Plan or Risk Losing the Game.
By: Jeff Bowman
Feb. 8 (FreeRateUpdate.com) – We speak to dozens of folks daily that are waiting for rates to get lower than the 4.25% 5Y jumbo mortgage loan or a fixed jumbo mortgage at 5.75% for a 30Y Term on a 2 million balance that we quoted. Of course, who doesn’t want a lower cost on something? Especially on a household budget item that represents roughly 20-30% of most clients’ household income.
Several factors could make waiting a disaster and the largest financial gamble a family ever unknowingly makes:Home values continue to fall and your equity is diminished thus resulting in cash required to close. Primarily because loan to value levels in general within the jumbo mortgage market require at least 20-30% equity. This depends on the jumbo loan amount and the housing market conditions within that city/state.
- If investors/lenders decide that the US is a big credit risk with trillion dollar budget deficits as far as the eye can see. Regular jumbo mortgage borrowers could be painted with the same brush and see much higher jumbo mortgage rates in the future. After all, who wants to buy an investment (mortgage bonds) that has a recent default rate of about 10%? Aside from the ATM that is the US Government via the Federal Reserve’s $1.25T mortgage purchase program (read: bailout housing to prevent epic depression). Investors being pension funds and mutual funds have to enter this market but as one of TIAA CREF’s ($363 billion in retirement assets) fixed income managers said earlier this week they are actively looking at entering this market after the FED leaves but he is quoted as saying, “at what price?” Article was a WSJ piece behind the pay wall on the MBS securitization market.
- Jumbo Mortgage guidelines continue to remain very conservative with equity requirements and debt to income limits. FICO requirements at most institutions require a minimum 720. We know of a few large competitors that require a 760 FICO. Only 40% of people have a score that would qualify. (Source)
- If further job losses and foreclosures lead to more losses on jumbo mortgages expect that risk management will tighten the screws on all these requirements even further.
If you don’t want to play the jumbo mortgage rate casino game anymore with your house, and understand the real risks of waiting for the “perfect time” Contact our office or another jumbo mortgage professional and get something done. Our highly experienced staff will tailor a jumbo loan that best matches your financial and personal plans with honest consideration of the various trade-offs involved. It is better to lock and be wrong than to ride the interest rate roller coaster in the coming years and regret it.
Curious as to what that roller coaster ride could look like?
Here is a chart of what a person with an ARM would have adjusted to vs. the 1Y LIBOR, which is the index that trillions of dollars of ARMs are based on. The standard industry margin is 2.50% plus the 1Y LIBOR which this chart reflects. (www.freerateupdate.com)
