Jumbo loan rates (foreclosure, scores, 30 year fixed, financial)

[LaMadden]

Why are the jumbo loans so high yet? Nobody is going to be buying houses when the rates are at 9%. Why are people who can afford these homes being crucified?

[annerk]

Because there is a greater risk. And 10% seems a bit high--I'm seeing rates in the upper 7's and low 8's with no points for a 30 year fixed jumbo.

[LaMadden]

Originally Posted by annerk

Because there is a greater risk. And 10% seems a bit high--I'm seeing rates in the upper 7's and low 8's with no points for a 30 year fixed jumbo.

I posted 9% for a jumbo. Jumbos should only run about a percent higher than a conventional. I would think that most foreclosures were on conventional and interest only loans anyway.

[annerk]

Originally Posted by Cruikshl

I posted 9% for a jumbo. Jumbos should only run about a percent higher than a conventional. I would think that most foreclosures were on conventional and interest only loans anyway.

There are two houses in my neighborhood (out of 37) purchased with jumbo's that are in foreclosure. Considering that it's taking an average of about 32 months for one of these homes to sell when it's not in foreclosure or a short sale, it's going to take the lender a LOT longer to get these homes off their books than the $120K house in the next development down the road. The pool of buyers is much smaller.

It's a much higher risk to the lender based on sheer volume. If they lend $1M to one borrower and that loan goes bad, that's a lot of money tied up. If they lend $1M broken up in $125K increments to eight borrowers and one goes bad, there is still profit from the others.

[chet everett]

Originally Posted by annerk

... If they lend $1M to one borrower and that loan goes bad, that's a lot of money tied up. If they lend $1M broken up in $125K increments to eight borrowers and one goes bad, there is still profit from the others.

I do not disagree that there are far more people that COULD buy a home down in the $125K range, but you are not comparing apples-to-apples. A tremendous number of people who BORROW $125K have a whole big pile of equity. This is VERY different than the percentage of people that take out a Jumbo -- even if they have other assets (and some do ) odds are not good that there is much equity going in.

The total asset picture of borrowers in the Jumbo portfolio is quite a bit different than the asset picture of "entry level" borrowers. Smart lenders are doing more due diligence on their Jumbo borrowers, going "old school" instead rubber stamping FICO scores. On properties with good loan-to-value numbers, borrowers with excellent TOTAL financial health smart borrowers are writing loans MUCH lower than the rates mentioned above...