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A good jumbo mortgage is tough to find. A good super-jumbo mortgage, even tougher
Finding good loans for more than your local loan limit take a little bit of research and a little bit of luck. When you find a good jumbo mortgage, though, the rewards are great -- low mortgage rates and a simplified approval process.
You have to know where to look.
Click here to get a jumbo rate quote.
Like today's conforming mortgages and FHA mortgages, jumbo mortgages are actually pretty widely available. The problem is that jumbo loans tend to be expensive.
The reason jumbo loans can be expensive is fairly straight-forward -- the government doesn't "back" jumbo loans like it does for conforming, FHA, VA or USDA-type loans.
For some background, remember that in starting in late-2006, mortgage markets went bad. Bad loans, bad risks, and a bad economy led to widespread losses within the industry. Mortgage banking was collapsing under its own debt and the respective stock prices of Fannie Mae and Freddie Mac -- both publicly-traded companies at the time -- had dropped from $70-levels to roughly $1 each.
At the time, there were concerns that both Fannie Mae and Freddie Mac would fail, dealing a crushing blow to a mortgage market already in tatters. So, the U.S. government stepped in and placed both agencies under conservatorship to restore market faith.
They remain in conservatorship to this day.
If you needed a mortgage in 2008 or 2009, you had few options. The FHA was a laggard at the time so you went through Fannie Mae, or you went through Freddie Mac. If the government didn't back it, the lenders didn't lend it. This meant no jumbo loans, no niche loans, and no loans that were any which way out of the ordinary.
It was an especially tough time for homeowners in places like Los Angeles, California and Alexandria, Virginia where mortgages routinely surpassed the national $417,000 conforming mortgage loan limit. If you needed to borrow more than $417,000, you were mostly out of luck.
There were no exceptions. "Jumbo lending" was gone. Either your loan met conforming mortgage guidelines, or you had no loan.
For the time-being, anyway.
Around the time that Fannie Mae and Freddie Mac were seized, the housing market crumbled. It was not a cause-effect type-thing; they were related events, occurring at the same time.
As an attempt to stimulate the housing market, then, the government passed the 2009 American Recovery and Reinvestment Act. The law increased conforming mortgage loan limits to $625,500 in high-cost parts of the country including the aforementioned Los Angeles and Alexandria, as well as other high-cost areas such as Marin County and Silicon Valley near San Francisco; and Montgomery County and Loudoun County near Washington, D.C.; and New York City.
Everywhere else, loan limits remained set at $417,00.
Because of the new loan limits, residents of Potomac, Maryland, for example, could borrow up to $625,500 via Fannie Mae or Freddie Mac, and still get access to conforming mortgages.
The people of Chicago, Illinois, however, couldn't say the same.
Because the government did its high-cost calculations based on Metropolitan Statistical Area, and because the Chicago Metropolitan Statistical Area stretches as far south as the Indiana border, as far north as the Wisconsin border, and as far west as Joliet, Chicagoland's median home price is too low to make high-cost lending available.
Homeowners and buyers in the following Chicago areas, therefore, remain stuck at $417,000. To borrow more is to be considered "jumbo".
For residents of these areas, unfortunately, a $417,000 mortgage rarely gets the job done. Homes routinely sell for $1 million or more. You'd have to make a $600,000 downpayment just to get to local conforming loan limits.
"Jumbo" homeowners in places like Chicago are forced to find other mortgage options.
Jumbo mortgage lending is private market lending at its best. Loans are too big for the government's mortgage appetite so market forces come into play. Each bank -- with its own appetite for risk --puts jumbo mortgage products on the market and prices those loans to risk.
When a bank feels good about taking on jumbo mortgage risk, its jumbo mortgage rates are low. Conversely, when a bank feels nervous about taking on jumbo mortgage risk, its jumbo mortgage rates are high.
This is why you can shop jumbo mortgages at 3 banks and get three very different rates. You rarely see that in the conforming market.
With conforming mortgages though Fannie Mae and Freddie Mac; or FHA loans, a loan officer will tell you that "money costs what it costs"; there's a near-commodotization because all of the loans are flowing through the government. Rates are the same from bank-to-bank, and closing costs are often close, too.
With jumbo loans, though, there's big disparity.
See, the terms "jumbo" and "super jumbo" -- these are words for a Conforming Mortgage World, as if Fannie Mae, Freddie Mac, and FHA were the only mortgage games in town. They're not. To the contrary, if you can find your way off Wall Street's way of lending, there are legions of jumbo mortgage lenders on Main Street, eager to help you.
Different from the Too-Big-To-Fail Banks, smaller, less-known banks actually prefer to keep their loans on their books. They don't underwrite to Fannie's and Freddie's sometimes-stifling standards. Rather, they underwrite to common sense and approve a loan on its individual merit.
Loans over $1 million are routine for banks that don't sell to the government. And the rates they offer are amazing.
Jumbo mortgages are readily available. You just have to know where to find them. The smaller, niche banks that make jumbo loans tend to be much better at underwriting and approval jumbo loans than marketing them. You'll never find them on Google, for example.
That's where I come in. I work for a bank that makes jumbo mortgage loans with wide-ranging criteria. Almost any loan size, almost any loan scenario -- it's something I can look at. And, if it makes sense to the bank, it's a loan I can make.
Need help with your jumbo mortgage? Just want to see rates?
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Dan Green (NMLS #227607) is an active loan officer with Waterstone Mortgage. Email Dan ator click to get a free, no-obligation rate quote.
You can also find Dan on Twitter and Google+.
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