Super Jumbo Loans Making a Comeback
By: Melinda Wright
August 4, 2010 (FreeRateUpdate.com) – For the past several years, the high-end housing market has stagnated, thanks to the jumbo (and super jumbo) loan market all but disappearing.
However earlier this year the federal government set higher loan limits as part of an economic stimulus package with the intention of making jumbo loans more affordable in expensive housing markets.
The gap between interest rates for conventional loans and jumbo or super jumbo loans also finally narrowed after having reached a high of between 3-5 percent. Jumbo loans range in size from $417,000 to approximately $730,000. Mortgages in excess of $2 – $3 million are referred to as super jumbo loans. There is no jumbo mortgage limit. Despite these recent changes, however, these loans are likely to still remain harder to obtain for the average borrower.
Jumbo and super jumbo loans are especially important in expensive housing markets such as Los Angeles, San Francisco, or New York, where a modest home can easily still start at $500,000.00.
As prices of luxurious properties have sharply dropped, new lenders, buyers and even banks are entering into this loan market. Banks are keeping these loans in their portfolios due to the smaller overall market and absence of any actual secondary market. However, the secondary market is now showing signs of revival, which is an indication that the narrower spread between jumbo and conventional loan rates will continue. The hope is that the secondary market will make a comeback, as its comeback will help stabilize the market.
Those who have postponed the purchase, sale or refinance of a home requiring a jumbo or super jumbo loan, such as a home on the ski slopes, on the beach in Hawaii, or any high cost area such as New York, Boston, Washington DC, or San Francisco, can now reap the benefits of these types of loans, provided they can meet the underwriting requirements.
Volume may be up for jumbo and super jumbo loans, but it is nowhere near what it was during the housing boom, or even before the housing boom. And, banks still require borrowers with outstanding credit and hefty down-payments. Despite all this, the evidence of a comeback is still good news for the middle and high end of the housing market, which has been close to non-existent in the past several years.
A big barrier for the return of the secondary market for jumbo and super jumbo loans still remains, however, and that is the anxiety over home price stabilization and the state of the economy. And, the reality is that mortgage rate levels are dependent on demand for Treasuries.