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Yeah, I was just visiting my brother in Orange County, CA this past weekend.
He was on of the "lucky" ones. He sold his home in Tyson's Corner, (Fairfax VA) for a big profit in 2004 and than sold his other home in McLean, VA for another big profit in 2006 and moved to the California in 2006 and has been renting for 3 years.
Now his wife is getting tired of the rental house they've been staying in.
Wife really wants the 1.6 Million Dollar (originally listed in 2008 at 2.3 million) home but my brother is insisting on going for the 950K (originally listed at 1.2 million) home because of the 725K cap on conventional loans out there.
But with a 1.6 million dollar home purchase, the lenders are requiring a 640K downpayment, which is crazy and even with 40% down, the jumbo rates are still almost 1 point higher than conventional rates.
I think the jumbo loan markets are screwed. It's like we are going back to the pre-depression era where lenders required almost a 50% downpayment.
Is the government just going to let the homes in the jumbo market fall? I'm afraid that's their plan. It's another redistribution plan of big government. They figure most of the higher end homeowners will just eat the costs or if those homeowners bail, than the government will just bail out the banks who lose money of these deals.
Either way, I think it's still looking bad for higher end homes.
I have a completely different take. The motivations of lenders that offer jumbos are quite different than other lenders. Even in the super high cost areas of Hawaii and similar places where there are no alternatives for anyone the jumbo market SHOULD NOT be available to folks with limited income. If that means that renting is the only option for a larger than normal percentage of residents, so be it.
The lenders dug their own graves by using ridiculous debt:income ratios. This drove values to comically high values. The crazy forces that drive some junky home in Palo Alto or the LA Hills to be so expensive ought to be reflected in better oversight by lenders that the finances of borrowers is sound, instead the lazy lenders routinely get left holding the bag. This has forced the INVESTORS to be "bad guys" and simply to demand MUCH great down payments so that the whole system is more stable.
If the salaries in CA don't allow the OP's brother to live in a home that he desires it just breaks my heart...
Higher end homes are generally the most vulnerable to fluctuations within the local market. Lenders increasingly expect buyers of such properties to absorb a greater amount of the market risk than was done earlier this past decade.
The more skin in the game a buyer has, the more likely that buyer is not going to walk away, come what may.
Is there a reason why the U.S. Government should go out on a limb and subsidize super jumbo loans?
It sounds to me like you brother is the one with his head screwed on tight and wants to live within his means.
Higher end homes are generally the most vulnerable to fluctuations within the local market. Lenders increasingly expect buyers of such properties to absorb a greater amount of the market risk than was done earlier this past decade.
The more skin in the game a buyer has, the more likely that buyer is not going to walk away, come what may.
Is there a reason why the U.S. Government should go out on a limb and subsidize super jumbo loans?
It sounds to me like you brother is the one with his head screwed on tight and wants to live within his means.
There's one reason and one reason only. No bank is lending. FHA only requires 3%, FICO of 620, and 36% DTI for a conforming...seems like the super jumbo market shouldn't be excluded since we're keeping this Ponzi alive.
This Fed announcement today should be interesting - we've used up the 1.25 Trillion buying MBS...yet the Fed can't afford to stop either.
Higher end homes are generally the most vulnerable to fluctuations within the local market. Lenders increasingly expect buyers of such properties to absorb a greater amount of the market risk than was done earlier this past decade.
The more skin in the game a buyer has, the more likely that buyer is not going to walk away, come what may.
Is there a reason why the U.S. Government should go out on a limb and subsidize super jumbo loans?
It sounds to me like you brother is the one with his head screwed on tight and wants to live within his means.
I misread who was whining, and while it may lead to a little marital discord, I have to agree that if OP's brother realizes that the use of a jumbo loan does carry a penalty then is responding EXACTLY as the lenders and regulators desire and shunning homes that he can't / does not wish to be over-extended /exposed to higher rates.
Wife may not be happy with the situation, but in the long run the whole family would be much worse off if they throw away money on higher rates AND are more at risk at getting upside-down.
The overall benefits to me, on a personal level, would be considerable if jumbos were as cheap / readily available as conforming, but I am not so selfish to wish for this when I know that the end result would be to make the whole "house of cards" shakier...
People that do not realize there are LOTS OF LENDERS making LOTS OF LOANS that are well secured are simply not paying attention to the real estate markets. While loan activity is no where near it was as the bubble stretched toward breaking point the QUALITY of the loans that traditional sources are making combined with health activity is very encouraging.
Jumbos that go along with buyer with "too much to loose" will do more than the government decreeing any institution "too big to fail".
Higher end homes are generally the most vulnerable to fluctuations within the local market. Lenders increasingly expect buyers of such properties to absorb a greater amount of the market risk than was done earlier this past decade.
The more skin in the game a buyer has, the more likely that buyer is not going to walk away, come what may.
Is there a reason why the U.S. Government should go out on a limb and subsidize super jumbo loans?
It sounds to me like you brother is the one with his head screwed on tight and wants to live within his means.
Yeah, I'll show both my brother and his wife my posting and the responses you guys on this board have given.
I think it's ridiculous that the government wants to insure homeowners who put as little as 3.5% down on a FHA with poorer credit, especially with this $8K tax credit promotion that's going to expire soon.
But the government doesn't want to touch/insure loans for a homeowner who has a 800 plus FICO, no debt, makes a very high income (they do a minimal of 700K a year...two income family in California). Why won't the government just insure jumbo loans for those who want to put down at least 30%. That's a significant cash downpayment. I don't think many people would "walk" if they put 500K cash on a downpayment on a 1.6 million dollar home. It's the ones who put zero or very little down who are basically walking away from their mortgages. You are right, lenders have tighten their lending practices for jumbo/super jumbo loans. Lenders want to take no risk at all because they have been burned the past few years.
I don't see many homeowners (even with the real estate crash) walking away when they've put at least 10% down. That's why I think requiring 40% downpayment is insane, even for jumbo/super jumbos, especially for a primary home.
In the end, I think for practical reasons (because of the current lending market), they will end up purchasing the "cheaper" 950K home.
I live in Fairfax County where your brother just left and purchased home in the same range. Jumbo loans/rates were completely laughable as you pointed out and thus going Conv was best course of action. It still required a SIGNIFICANT amount of $$$$$ down regardless, but it is what it is thanks in part to all the geniuses who bought with little or nothing down. There are more to blame, but at some point the individual needs to be accountable and understand what they are getting themselves into. With no vested interest in the property, i guess why not just walk....the GOVT will bail them out anyway.
Totally agree with you about the tightened lending practices, and its totally unfair how anyone making over the cap is penalized ref the credit. Heck I wouldnt mind using that 8k credit (or any sort of credit for that matter). Understand some need it more than others, but why not extend that across the board regardless of income? Guess it makes entirely too much sense.
But the government doesn't want to touch/insure loans for a homeowner who has a 800 plus FICO, no debt, makes a very high income (they do a minimal of 700K a year...two income family in California). Why won't the government just insure jumbo loans for those who want to put down at least 30%. That's a significant cash downpayment. I don't think many people would "walk" if they put 500K cash on a downpayment on a 1.6 million dollar home. It's the ones who put zero or very little down who are basically walking away from their mortgages. You are right, lenders have tighten their lending practices for jumbo/super jumbo loans. Lenders want to take no risk at all because they have been burned the past few years.
We need to remember why HUD was formed - to give everyday Americans the opportunity to own a home. Your brother can easily own a home, he just chooses to buy above the FHA loan limits. We are all quite fortunate that HUD has stepped up and given us the FHA Jumbo category. Without it, many of us would be without jobs. So, while I see the point you make, HUD has provided many the opportunity to buy without the larger down payments. In fact, many of you may remember, the original HUD down payment calculations were structured in such a way, that the loan was actually structured so that the buyer could finance more to allow more of his cash to be devoted to closing costs. I think if we start allowing the government to finance luxury homes, we have gotten off the original intentions of the HUD program.
Totally agree with you about the tightened lending practices, and its totally unfair how anyone making over the cap is penalized ref the credit. Heck I wouldnt mind using that 8k credit (or any sort of credit for that matter). Understand some need it more than others, but why not extend that across the board regardless of income? Guess it makes entirely too much sense.
Isn't it funny that the government puts in incentives for people to spend money but won't let those that actually have money to spend use the incentives. If the incentives are intended to spur economic activity why cap them so that those who are most likely to be able to participate in the desired activity are shut out of the credit?
Anyway-we are thinking of moving up to a more expensive home on a larger lot and may need a jumbo loan. I think the limit is $417K here and we are looking at $700K homes. Are there options other than putting down 40% (we could put down that much)? Are the requirements for a 15 year jumbo loans as strict?
We need to remember why HUD was formed - to give everyday Americans the opportunity to own a home. Your brother can easily own a home, he just chooses to buy above the FHA loan limits. We are all quite fortunate that HUD has stepped up and given us the FHA Jumbo category. Without it, many of us would be without jobs. So, while I see the point you make, HUD has provided many the opportunity to buy without the larger down payments. In fact, many of you may remember, the original HUD down payment calculations were structured in such a way, that the loan was actually structured so that the buyer could finance more to allow more of his cash to be devoted to closing costs. I think if we start allowing the government to finance luxury homes, we have gotten off the original intentions of the HUD program.
Does HUD have anything to do with conforming limits? As I understand it conforming loan limits are sent by Fannie Mae and have nothing to do with the HUD program. Fannie Mae sets conforming limits.
The conforming limit in my area is $423K. With a 20% down payment that allows someone to buy a home costing $529K which is at the upper end of the middle market here. You can buy a nice 4/3 on a very small lot here for that much money. It will be a nice house, but hardly a luxury mansion.
In more expensive markets the conforming limits are higher because average housing costs are higher. So a more expensive house will not necessarily be more luxurious.
It makes no sense to me that the goverment sponsors programs (like the $6500 move up credit) but restricts access to that credit based on income. If the intent is to spur economic activity I would think that it makes sense to make the credit available to EVERYONE and not restrict access to the people who are actually making a higher than average income (who are the ones who can probably afford to buy a house).
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Agreed.
