What Is A Jumbo Loan
WHAT IS A JUMBO LOAN?
The new conforming loan limits are set every January, and the amounts for a jumbo loan are determined based on those limits. Effective January 1st, 2010, the conforming loan limits are as follows: for houses in the contiguous United States, the maximum loan limit for a single family residence is $417,000. For a two unit property, the maximum loan amount is $533,850. A three unit property loan limit is $645,300 and a four unit loan limit is $801,950. In Alaska and Hawaii, the maximum loan limit for a single unit is $625,000; a two unit, $800,775; a three unit, $967,775; and a four unit, $1,202,925. This change has remained consistent since 2006. Any loan above this amount is classified as a JUMBO LOAN.
In 2009, responding to the economic problems a modification was made by the two largest insurance agencies, FNMA and FHLMC, to offer jumbo-conforming programs up to a max of $729,000. This maximum amount will be determined by County. For example, in Los Angeles, Orange and San Francisco Counties the limit is $729,000 but in Ventura County the amount is $650,000. The main reason for this modification was to create a stimulus package to homeowners where by they could benefit in financing on loans because of the disappearance of the jumbo market on Wall Street.
All loans are bought and sold as commodities on Wall Street and even though your bank may continue to service the loan the risk of making the loan is passed to investors who are looking for return on a long term investment. Mortgage Securities have traditionally been one of the most stable risks to investors until the market crisis in 2007. The delinquency rate on jumbo loans rose dramatically, tripling over the course of 2009, and by February 2010, almost one in ten jumbo mortgages were 'seriously delinquent' (i.e. in arrears by at least 60 days).
Jumbo mortgage loans are a higher risk for lenders. This is because if a jumbo mortgage loan defaults, it may be harder to sell a luxury residence quickly for full price. Luxury prices are more vulnerable to market highs and lows in some cases. That is one reason lenders prefer to have a higher down payment from jumbo loan seekers. Jumbo home prices can be more subjective and not as easily sold to a mainstream borrower, therefore many lenders may require two appraisals on a jumbo mortgage loan.
In the past buyers of Jumbo loans have been foreign governments, investment banks and insurance companies but these businesses were hit very hard in 2007 and disappeared from the market. Now Jumbo rates are typically a full % higher than conforming rate loans due to the limited number of buyers for these loans. In the future we may see that spread decrease to a traditional margin of .375% to .5%.
Although the rate may be higher the end result is that the borrower obtains financing on a property and that represents a valuable result. Sometimes jumbo loan clients are upset that they are paying a higher rate but their loan carries a higher risk. On the flip side, when markets appreciate the jumbo loan holder has a much greater chance for equity improvement.
The new conforming loan limits are set every January, and the amounts for a jumbo loan are determined based on those limits. Effective January 1st, 2010, the conforming loan limits are as follows: for houses in the contiguous United States, the maximum loan limit for a single family residence is $417,000. For a two unit property, the maximum loan amount is $533,850. A three unit property loan limit is $645,300 and a four unit loan limit is $801,950. In Alaska and Hawaii, the maximum loan limit for a single unit is $625,000; a two unit, $800,775; a three unit, $967,775; and a four unit, $1,202,925. This change has remained consistent since 2006. Any loan above this amount is classified as a JUMBO LOAN.
In 2009, responding to the economic problems a modification was made by the two largest insurance agencies, FNMA and FHLMC, to offer jumbo-conforming programs up to a max of $729,000. This maximum amount will be determined by County. For example, in Los Angeles, Orange and San Francisco Counties the limit is $729,000 but in Ventura County the amount is $650,000. The main reason for this modification was to create a stimulus package to homeowners where by they could benefit in financing on loans because of the disappearance of the jumbo market on Wall Street.
All loans are bought and sold as commodities on Wall Street and even though your bank may continue to service the loan the risk of making the loan is passed to investors who are looking for return on a long term investment. Mortgage Securities have traditionally been one of the most stable risks to investors until the market crisis in 2007. The delinquency rate on jumbo loans rose dramatically, tripling over the course of 2009, and by February 2010, almost one in ten jumbo mortgages were 'seriously delinquent' (i.e. in arrears by at least 60 days).
Jumbo mortgage loans are a higher risk for lenders. This is because if a jumbo mortgage loan defaults, it may be harder to sell a luxury residence quickly for full price. Luxury prices are more vulnerable to market highs and lows in some cases. That is one reason lenders prefer to have a higher down payment from jumbo loan seekers. Jumbo home prices can be more subjective and not as easily sold to a mainstream borrower, therefore many lenders may require two appraisals on a jumbo mortgage loan.
In the past buyers of Jumbo loans have been foreign governments, investment banks and insurance companies but these businesses were hit very hard in 2007 and disappeared from the market. Now Jumbo rates are typically a full % higher than conforming rate loans due to the limited number of buyers for these loans. In the future we may see that spread decrease to a traditional margin of .375% to .5%.
Although the rate may be higher the end result is that the borrower obtains financing on a property and that represents a valuable result. Sometimes jumbo loan clients are upset that they are paying a higher rate but their loan carries a higher risk. On the flip side, when markets appreciate the jumbo loan holder has a much greater chance for equity improvement.
