Sunday, March 22nd, 2009 at 9:57 AM
Jumbo Loan Relief
Lenders are getting back into the jumbo-loan market. From the U-T:
An excerpt:
Major banks are heading into the jumbo segment, originating big loans at affordable rates – not for Wall Street bond traders but for their own investment portfolios. Bank of America, the country’s largest mortgage lender, is rolling out a large program to finance jumbo loans between roughly $730,000 and $1.5 million, with fixed 30-year rates starting in the upper 5 percent range. The loans will be available through the bank’s retail network and also through its Countrywide Home Loans subsidiary. After April 27, Countrywide will be rebranded – shedding the name it’s had since 1969 – and morph into Bank of America Home Loans. Bank of America acquired Countrywide in 2008.
Though it will almost immediately become the biggest player in the jumbo loan segment, Bank of America will not be alone. With little fanfare, other financial institutions have become more active.
For example, ING Group, an Amsterdam-based banking and insurance conglomerate, offers jumbos as large as $2 million through its online ING Direct unit. The minimum down payment for an ING Direct jumbo is 25 percent; Bank of America quotes a minimum 20 percent.
ING’s jumbos typically are “5/1” and “7/1” hybrids with a fixed interest rate for the first five or seven years, followed by an adjustable rate tied to the LIBOR interbank index for the balance of the 30-year term. Current rates start around 5 percent.
Bank of America’s new program requires hefty liquid resources – six months of principal, interest, property tax and insurance payments in reserve – plus fully documented income, solid credit scores, and a full appraisal.
Posted on Sunday, March 22nd, 2009 at 9:57 AM in Interest Rates/Loan Limits | 19 Comments » | 
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Not going to make a difference as long as they are still requiring real down payments.
20% – 25% down plus 6 months reserves?
How many people do you know with
1) $300,000 in cash lying around
and
2a) Either don’t already own a home
or
2b) Want to buy a second home or trade up in this economy?
W.C. Varones | March 22nd, 2009 at 10:08 amThey’re going all in, and either it’s a brilliant move by Lewis & Co. to try to dominate the market, or a last-ditch effort to right the ship.
Countrywide tried the same thing at the end of their run – remember when Countrywide Bank was offering some of the best CD rates, right before Angelo left town? With BofA you can probably guess that the Fed has backstopped the whole package, so they’ll borrow low and lend high and see how it goes.
Buyers who do qualify will be relieved to save 1-2%, but they’re still not going to buy a house unless the price is right.
Jim the Realtor | March 22nd, 2009 at 10:29 amIt’s a good play, which they probably would have done five+ years ago if they weren’t making billions on leveraged securitization instead. They won’t get a lot of buyers, but they might get a lot of refi traffic, where they can move the loan from whoever is making decent money on it now into their portfolio. Since they can borrow from the Fed at effectively 0%, and the people their lending it to (and terms they’re lending it under) make it unlikely to be underwater or default, they will be fairly safe loans. Plus, they can trumpet it as progress in making more lending available, even if they only actually do refi business.
It’s a good play by the big subsidized banks to leverage their unfair business advantage to take money away from the other unfortunate companies who make jumbo loans but can’t borrow at the Fed window for free. Soon you may need to be nationalized to compete in the industry.
Nick | March 22nd, 2009 at 10:59 amThere are alot of people sittling on the sidelines–we know a few ourselves–two couples had sold toward the peak and have been renting since–with cash and credit waiting to buy houses that will require jumbo loans. It will also help those with jumbos to re-fi–it can’t hurt.
Local Boy | March 22nd, 2009 at 11:26 amThe number of people able to qualify with the whole package (FICO, down payment, income, reserves) is low. Essentially that market exists right now but @ 7% rates.. if those rates go to 5.75%.. it will make a marginal difference.
It isn’t like there is a bunch of people in that income/reserve/down payment range sitting on the sidelines waiting to jump in.
Effective Demand | March 22nd, 2009 at 12:50 pmMy thoughts exactly. Bank of America is arguably worth less than Countrywide when they bought it.
sdbri | March 22nd, 2009 at 1:07 pmThe home buyer segment of the market is small and won’t make much of a dent even with low interests rates. The bubbles pretty much chewed them all up. What is happening now is the balloon is chewing itself.
3clicks from da Beach | March 22nd, 2009 at 1:31 pmLocal Boy,
Sure there are some who sold out at the peak and rented, but there aren’t that many of them out there.
More importantly, they are extremely price-sensitive. If they were smart enough to cash out for price reasons during the mania, they are not going to jump back in until the high end sees more substantial price declines.
In the area I’d like to buy in, listing prices are still pretty much at the peak (2007ish). I’m waiting for at least 2003 if not 2002 prices.
W.C. Varones | March 22nd, 2009 at 2:36 pmI for one am very happy to hear about responsible lending practices. These loans will be perfect for us and for several other couples we know who have been sitting on the sidelines. Still not going to jump in until prices drop some more in the high end, but it’s good to know these loan products are out there.
FirstTimeRenter | March 22nd, 2009 at 2:57 pmGiven the qualifying terms, this is exactly what a jumbo should look like. However, even at under 6% those terms suggest prices far lower than current.
tj and the bear | March 22nd, 2009 at 3:14 pmVarone–Agreed–however, you need both a price delcine AND a competitive jumbo loan–if the price decline comes and the jumbo’s are sitting 2-3% higher than non-jumbo’s–no go. We are 1/2 way there!!! As I said–it can’t hurt.
Local Boy | March 22nd, 2009 at 3:32 pmNick,
You nailed it on the Fed window. It’s unfortunate for smaller banks, but setting the Fed rate at 0% is a good way to encourage banks to lend again. It also makes the big banks healthier (assuming they continue to have lending standards,) which must happen before the economy improves. And hey, it beats throwing my tax dollars at deadbeats.
The Blur | March 22nd, 2009 at 9:03 pmBank of America’s new program requires hefty liquid resources – six months of principal, interest, property tax and insurance payments in reserve – plus fully documented income, solid credit scores, and a full appraisal.
————————-
I think it’s funny that they consider these “hefty” liquid resources. This is just what traditional lending is **supposed** to look like.
If someone is thinking about buying a house that’s expensive enough to require a jumbo loan, then they should have no problem with these requirements. Jumbo loans, by their very nature, should only be offered to **wealthy** people, not strawberry pickers.
These requirements are just what we need to fix the problem. Now, we need to have these same requirements in the conforming sector, too. If they had kept to these guidelines on all mortgages from the beginning, we would not be having a “foreclosure crisis” right now.
CA renter | March 22nd, 2009 at 11:29 pm“It isn’t like there is a bunch of people in that income/reserve/down payment range sitting on the sidelines waiting to jump in.”
I respectfully disagree! I think there are many out there in this exact scenario. Plus, those who refi under this program move from the ‘may have to move when ARM resets’ to ‘don’t have to move’…and I think that’s a good thing.
BAM | March 23rd, 2009 at 7:39 amThis and the other programs will bring more buyers into the high-end market this season.
People with the cash are buying $1MM houses cash or equity lines and then financing once they are in for few months.
There are actually some good deals happening west of the 5 right now with ocean views and you can walk to the beach. Million dollar neighborhoods where you can get in for $800K right now.
Mozart | March 23rd, 2009 at 8:25 amI think it’s funny that they consider these “hefty” liquid resources. This is just what traditional lending is **supposed** to look like.
Yes. I’ll say it again, traditional lending will not restart this bubble. What is the maximum DTI? Where I want to buy, the median DTI was 52% during the bubble with a median down payment of 5%.
Oh… What about all those $2.5M to $4.0M properties that are stitting? This does nothing for them. Oh, it will help the $1M to $2M market for a bit… but then?
For every buyer I know on the sidelines, I also know two specuvestors wishing they could cash out at 2006 prices. But this is a good thing. “Frozen” markets help no one. In particular sellers who wouldn’t realize a price cut would move the place.
Got Popcorn?
Neil | March 23rd, 2009 at 8:57 amNeil
Bam,
econman | March 23rd, 2009 at 5:48 pmNot sure how this would help most jumbo ARM resets, I have an ARM resetting to 4.85%. Most jumbo arms were not sub-prime, they were alt a liar loans and prime loans. Unless you are going to remain in the property for 7+ years there is no advantage to paying up to refi at 5.75%-6% plus closing costs.
I see the B of A deal as more PR than substance.
They are just cherry picking for some more clients to cross sell for their “private banking group”.
As someone who might use a jumbo loan, I am delighted to (finally!) see a better rate for those with good qualifications and resources. It was really frustrating that for all our good credit-worthiness we had the priviledge of paying several rate points higher than we would if our mortgage was under $415,000.
Now the question is still: will the home prices in this higher end of the market start moving closer to reality so buyers will actually use these loans?
shoppingaround | March 24th, 2009 at 5:44 am[...] bubbleinfo.com » Blog Archive » Jumbo Loan Relief [...]
Loan Modification | Mortgage Relief Programs | September 23rd, 2009 at 1:58 pm