The low and steady jumbo mortgage rates are a primary factor in the renewed interested in these historically risky loans. As of this writing, the jumbo mortgage rate for a 30-year fixed rate mortgage is 5.125 percent and 4.625 percent on a 15-year fixed rate jumbo loan. The average mortgage rate over the past year has fallen by 1 percent. On a $600,000 mortgage loan that translates into a savings of nearly $400 every month. Today, jumbo loans are considered loans over $417,000 for average markets in the continental U.S.; $729,750 in high cost areas, such as Los Angeles and New York City; and $938,250 in Alaska, Guam, Hawaii, and U.S. Virgin Islands. The conforming mortgage limit is $523,750 for the greater Boston area.

Historically, jumbo mortgage loans are more risky that those the meet the conforming loan limits. However, due to the current economic landscape, jumbo mortgages have a lower default rate and provide less risk for mortgage lenders. The Wall Street Journal reports that jumbo mortgage lenders have increased their 2010 jumbo loan volumes. Case-in-point: Wells Fargo. This lender nearly doubled its jumbo loan originations since last year to $3.7 billion in the second quarter. J.P. Morgan Chase is another quality example of the renewed interest in jumbo mortgages. J.P. Morgan Chase has increased its jumbo mortgage lending by 16 percent during the second quarter.

Jumbo mortgage lenders require higher quality borrowers, hence, putting prospective borrowers through the wringer before funding the transaction. For example, although J.P. Morgan Chase vivaciously pursues jumbo mortgages and has more than sufficient capacity to support jumbo loans, the spokesman for this mortgage lending giant comments, “we are still using very disciplined underwriting and we want to make sure that [borrowers] have an ability to repay the loan.” Lenders also require two or more months of income verification, such as pay stubs, financial statements, and two years of tax returns. Some jumbo loan lenders even go as far as to question borrowers verbally regarding something as seemingly insignificant as a tear in the corner of their paperwork.

Nevertheless, the enhanced interest in jumbo mortgage loans has greatly helped stabilize the luxury real estate market in Massachusetts while properties in less pricey communities continue to decrease. Due to the favorable jumbo mortgage rates, jumbo loan refinances are also on the rise. A jumbo loan refinance allows current homeowners to modify the risk of their jumbo loan by refinancing out of an adjustable rate mortgage and into a less risky fixed rate jumbo mortgage loan.

A cash in refinance is when a borrower brings money to the closing and, therefore, puts money into the transaction. These funds brought to closing must be documented with bank statements from the account that the funds were taken from. Borrowers need to know that all other normal underwriting guidelines still apply to these transactions.

According to the government sponsored entity, Freddie Mac, 22% of refinances made during the second quarter of this year have been cash in refinances with cash out refinances as their lowest level since 1985. As savings accounts, money market accounts and certificates of deposit have interest rate returns at their lowest since the 1930s, borrowers are choosing to invest their money into the equity of their homes instead of banks. As compared to several years ago when consumers were spending, today’s consumers have become more conservative and are interested in paying down their debt.

With housing values declining, many borrowers cannot qualify for a refinance unless they have more equity in their homes. As the past housing boom slowly corrects itself, the value of housing has plummeted leaving many home owners underwater in their mortgages. With these mortgages, a cash in refinance is the only option to take advantage of the current low interest rates. For many borrowers, bringing enough cash to increase their home equity to 20% will result in a lower interest rate and also the elimination of monthly private mortgage insurance premium payments. Since PMI rates have also increased for those without pristine credit, having to pay PMI could potentially disqualify some borrowers. With 30% home equity, the interest rate can possibly be even lower. Today’s stricter underwriting standards support loan to value ratios that should be at least between 75% to 80% in order to get the best rates. The less the loan to value together with good credit scores equals the lowest possible interest rate.

Some borrowers are bringing cash in to the refinance in order to avoid a jumbo mortgage which carries a higher rate. With the current interest rates at 50 years lows, some are refinancing with the intent to stay in their home for the long term. By doing a cash in refinance and reducing principal, many are finding that they are able to take a shorter term mortgage in an effort to pay down their loan as quickly as possible and, thereby, reducing their debt burden sooner. This has made the 15 year refinance very popular in today’s market. Over time, not only is the term shorter, but the overall interest paid over the life of the loan is greatly reduced.

As time goes on, housing will boom and bust while trends will come and go. Today’s trend of the cash in refinance will stay around as long as interest rates are low, housing prices are low and money is tight. With so much uncertainty in the economy, borrowers will continue lowering their mortgage interest rates via the cash in refinance in order to eliminate their debt as quickly as possible.

People in California are beginning to see that there are great deals to be found in the high end real estate market. Buyers who have cash are benefiting from the low jumbo mortgage rate which is currently at 5%. With so much speculation as to whether rates will go lower or higher, people are getting into the market now so that they don’t miss out on a perfect opportunity, lower home prices and lower mortgage rates.

At the height of the financial crisis, jumbo mortgages were basically gone. Since lenders had to hold these loans in their portfolios, they no longer were willing to take the risk on new loans. Investors were more interested in the security of government backed securities and turned their backs on the private lender group. This is turn closed up the real estate market for high end homes bringing it to a stand still since the meltdown.

As banks now have more capital on hand and are ready to lend, they are aggressively seeking out the jumbo mortgage borrower. Jumbo mortgage applications have continued to rise over the past few months as rates continued to get lower. This group of borrowers have higher incomes, stable jobs and enough money to come up with the 30% to 40% required down payment. Although underwriting standards are much stricter than they were years ago, people are still finding it easy to qualify for a jumbo mortgage. Those with credit scores in the 700s and enough money for the sizable down payment are finding good deals with both housing and rates. Since the jumbo mortgage market has begun to breathe again, sellers are eager to be a part of it and have become more flexible with their asking prices. With more affordable rates being offered for jumbo mortgages, opportunity in the high end market is opening and should assist in stabilizing home prices in this area.

Since jumbo loans are available to those with excellent credit, banks find that lending to this group is both safe and profitable. More banks are starting to plunge back into the jumbo mortgage market and, in effect, creating competition for business. This trickles down to more competitive rates, more business and more high end homes being sold. As low jumbo mortgage rates are helping California’s high priced home markets come alive again, it will be interesting to see if interest in low jumbo mortgage rates continue to sprout throughout the country thus leading the way for the well anticipated housing recovery.

Historically, jumbo mortgage rates were higher than conforming loan rates due to their considerable riskiness. But, recent developments in the mortgage lending business have made jumbo mortgage loans more attractive to banks and borrowers.

In order to avoid a government take-over, banks are motivated to provide more options to borrowers by way of jumbo mortgages. President Barack Obama signed new financial reform legislation last month, the Dodd-Frank Act, which permits the Federal Deposit Insurance Corporation (FDIC) to dismantle any financial institutions deemed “systemically risky,” forces banks to increase capital reserves, and enforces these regulations via a new consumer financial protection bureau.

In comparison to non-conforming jumbo loans, FHA-insured loans cost more. The annual percentage rate of an FHA-insured loan is 5.178 percent, whereas the APR of a jumbo loan is 5.098 percent. This year the Federal Housing Administration has reduced allotted seller concessions, increased down payment requirements, and increased mortgage insurance premiums. The FHA is floundering about for liquid assets because an audit revealed that capital reserves dipped to 0.53 percent, which Congress has mandated cannot be less than 2 percent. The FHA Commissioner, David Stevens, reported that the FHA seeks to decrease its market share by making it more difficult to qualify for FHA loans.

Big banks, such as J.P. Morgan Chase, Citibank, and Wells Fargo, are capitalizing on these recent developments by expanding jumbo lending practices. Some banks offer jumbo loans for as low as 10% down, 65 percent LTV, and $10 million mortgages. Jumbo loans are less risky because default rates are relatively low as most banks require a credit score above 680.

Of seven major housing markets, Redfin Corp. reports that less than half of active listings in 2009 resulted in sales. But, the aggressive pursuit of jumbo mortgages loans has provided a much needed boost in the luxury housing market. Pending sales in the luxury housing market is the only pricing category that increased in the past month. According to National Association of Realtors spokesman, Walter Maloney, the sales volume for homes over $1 million is up more than 35 percent from this time last year and homes between $700,000 and $1 million is up by 29 percent over last year. Maloney attributes these increases to the recent affordability and availability of jumbo mortgage loans.

The government could feasible put a wrench into the positive movement of jumbo loans by way of the Dodd-Frank Act. Just released Monday, the Federal Reserve Board is proposing a revision of escrow account requirements for first-lien jumbo loans. In order to determine whether a lender ought to establish an escrow account for property taxes and insurance, an APR threshold of 1.5 percentage points is currently applied. The Fed will increase the APR limit to 2.5 percentage points.

Although it is tough to determine how low interest rates will go, it is reasonable to assume that a rate increase will hurt the housing market. As unemployment grazes double digits and Fannie and Freddie file for additional government bailouts, a double-dip in the housing market is not in the best interest of the current administration and definitely not beneficial for Americans.

Jumbo mortgages are those loans that are too large for government assistance through Fannie Mae, Freddie Mac and the FHA which is available for mortgages that don’t exceed $417,000 and $729,750 in more expensive areas of the country. After the financial crisis hit, the jumbo mortgage market basically froze and came to a halt. With the absence of a secondary market and housing prices continuing to drop, lenders had to keep these existing jumbo mortgages on their balance sheets and became unwilling to add any additional risky, jumbo loans to their portfolio which left high end buyers locked out of the market. It literally crippled the jumbo mortgage market for high end home purchases and refinances.

As banks have begun to recover and have more capital on hand, they are now more willing to return to the jumbo mortgage market, although at a cautious pace since the secondary market has not yet returned. As the jumbo mortgage market tends to be more varied, so do the interest rates and terms vary widely. All of this is great news for upscale home shoppers, those who want to refinance and those who want to upgrade to larger homes.

Although the banks are beginning to lend and jumbo mortgage rates are at record lows, lenders are still being very cautious and using tight standards for qualifying. Those applying will need to fully document income and assets for the past several years. Although required credit scores will vary, the average score needs to be at least 720. As far as debt ratios are concerned, monthly mortgage payments must require no more than 36% to 38% of pretax income. Debt payments, including auto loans and credit card payments, cannot take up more than 41% of pretax income. For purchases, the down payment depends on the amount of the loan with some as low as 20% and some as high as 40% down payment.

For anyone who qualifies, the current jumbo mortgage rates are very competitive. Borrowers who are shopping for an adjustable rate can choose from the 5/1 ARM at 3.625%, 7/1 ARM at 4.50% and the 10/1 ARM at 4.90%. For a fixed rate jumbo mortgage, the 15 year fixed is 4.50% and the 30 year fixed is 5.125%. Since these rates vary from lender to lender, borrowers need to shop around. While the short term borrower may opt for the adjustable rate mortgage, the long term borrower might find the fixed rate more attractive since rates are so low and have no where to go but up. The rate spread between the conforming mortgage and the jumbo mortgage has narrowed down to less than a percentage point.

With no secondary market, the jumbo market has not yet completely melted. With jumbo mortgage rates at record lows and the jumbo market thawing, it is wise to remember that it is limited to the amount that the banks are willing and able to keep on their own balance sheets until the return of private outside funding.

Banks have to lend to make money. Above all, you have to pay the depositors and to keep the lights on. The previous places to allocate bank capital have been the last places a prudent risk officer would suggest today to the lending products group. Construction lending is dead, commercial is barely alive beyond plain vanilla ultra-safe refinances, home equity lending is available but the masses no longer have the 20-30% equity that is required now and business lending is a tough proposition given that small/medium size business are under very real financial strain due to sharp drops in revenue.

The push for somewhere to put all the government and depositors money has lead management to determine that lending on solid jumbo loans is the place to be in a risky lending environment.  This has resulted in the lowest fixed jumbo rates in history. Jumbo Mortgage money is on SALE. Fixed 30Y rates are currently 5.75% and 15Y Fixed Jumbo Loan rates are at 4.375%.

As always there is the fine print. These programs are available to prudent borrowers with 20-30% equity, 6-12 months of payments in savings/investments(401k, IRA), 720+ FICO scores and low debt to income ratios. About the income side, underwriting is looking out for lost bonuses, furloughs, and compensation cuts of any kind as an on-going issue hurting the household cash flow. Exceptions are granted here and there but we all read the news of Wall St bonus cuts, this city/state is cutting payroll and the big AD agency is reducing compensation. With strategic defaults, walk-aways, a large overhang of luxury homes hitting the market this spring; an underwriter needs to show risk management that this borrower will weather the economic storm. Having a solid income and a great FICO is a start but the behavior of others creating a 12% delinquency(over 60+ days late) rate for jumbo loans has bumped up the equity requirement to refinance and purchase.

I think this is healthy overall but for those “waiting till later” to refinance should wake up and put this on the weekend to-do list. I can’t stress enough how important your home equity is to your ultimate jumbo loan approval and the interest rate you receive. Consider your local housing market, your neighborhood and your risks. We speak to people every day that could have refinanced without writing a check at closing but chose to wait in 08 or 09. Their equity declined when the guy two blocks down foreclosed or the golf course development was forced by their bank to have a fire sale on the last remaining units this winter. These crush comparable property values as an appraisal is a snapshot of what your home is worth TODAY to a willing/able buyer.

With the fire sale of assets causing luxury real estate markets to implode(check out Newport Beach, CA or Manhattan, NY prices are back to 05 or earlier) and very probable future increases in the rates of LIBOR based ARM loans; doing nothing and going about your day to day life is not an option. Get your financial house in order as this ride will last many more years. Later this week I will break out the HUGE gamble people with an ARM are taking by not locking in a fixed rate or a new ARM that meets their particular needs.

Have a prosperous day.

Mr Jumbo Mortgage

This video talks about rising delinquencies, where the housing market is headed, buyer confidence and what the latest numbers by Fitch say about the jumbo mortgage market. This video explains how California, New York and Florida make up a large percentage of delinquent jumbo loans. U.S. jumbo prime market delinquencies have risen a great deal.

5/1 ARM Jumbo Mortgage Rates are Very Good

The best option in today’s jumbo mortgage market may be the 5/1 ARM. Believe it or not we found multiple lender’s including DiTech and GMAC offering the jumbo 5/1 ARM just under 4 percent. The index the jumbo 5/1 ARM’s adjustable rate follows after the 5 year fixed interest rate period is the LIBOR index. We advise anyone considering a jumbo 5/1 ARM to take a good look at the LIBOR index, it’s history and analysis of it’s future. Especially if there’s a strong possibility you’ll still be in the loan after the 5 year fixed rate period. That being said we do not recommend, especially on larger loan amounts, a 5 year adjustable rate mortgage for anybody who is going to be in a home for more than 5 years.

Current Jumbo Conforming Mortgage Rates

Current jumbo conforming mortgage rates are averaging about a 1/4 percent higher than normal conforming mortgages. Due to the extremely strict underwriting on the higher loan amounts, insured by Fannie and Freddie, we recommend getting a custom rate quote. There’s lots of modifications to points, fees, and rates based on the risk factors involved with each mortgage. Most of the time lenders are requiring FICO scores in the 700′s and at 30 percent equity.