Mortgage Rules Changing in 2014 for Jumbo Loans
By: Rosemary Rugnetta | February 7th, 2013
The Consumer Financial Protection Bureau is tightening lending standards and guidelines for all mortgages, including jumbo loans. Jumbo loans are private market mortgages which are usually held by the lender. While the risks are high for lenders, the profits made with these loans are also high. To protect both borrowers and lenders, changing mortgage rules in 2014 for jumbo loans should make 2013 a jumbo mortgage year with an increase in volume as home buyers rush to beat the updates.
Starting in 2014, lenders will no longer be able to issue loans without verifying the income and assets of a borrower. This low documentation profile is a common practice in the jumbo mortgage market. Low doc mortgages accounted for approximately 12% of private mortgage borrowers between January and the end of October 2012, according to CoreLogic, a real estate analytics firm. Many of these borrowers are self employed which makes it more difficult to provide income through personal and business tax returns and financial statements.
The use of interest only loans, another common type of jumbo loan, will also be restricted. According to CoreLogic, approximately 14% of the private mortgage originations during the first ten months of 2012 were for interest only loans. An interest only loan allows a borrower to only pay interest and no principal for a certain amount of time. In 2014, lenders will be liable in the event of a default if still issuing this type of loan.
While these changes may halt some jumbo loan activity in 2014, there may be a burst of activity in 2013 as more borrowers try to beat the deadline. Activity in the higher priced real estate market has been on the increase for the past year. Competition has risen in the jumbo loan market as more lenders are showing an interest in offering these loans. Jumbo rates, along with other mortgage rates, have been extremely low making them attractive to high end property buyers. With changes on the horizon, 2013 should be the year for jumbo originations.
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