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Jumbo mortgages. They can be tough to find.
If you need a mortgage that's too big for your local conforming loan limit, getting a good, low rate takes a little bit of research and a little bit of luck.
Click here to get a jumbo rate quote.
Jumbo mortgages are available -- they just tend to be expensive. The reason is fairly basic.
See, beginning in late-2006, mortgage markets soured. 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.
There were concerns that Fannie and Freddie would fail, dealing a crushing blow to a mortgage market already in tatters. The U.S. government stepped in and placed both agencies under conservatorship to restore market faith.
If you needed a mortgage in late-2008/early-2009, you went through Fannie Mae or Freddie Mac, or you had few options. The FHA was a laggard at the time, and most other avenues for a mortgage loan had dried.
If the government didn't back it, the lenders didn't lend it.
This was an especially tough time for homeowners in high-cost areas or whose home loans were larger than the $417,000 conforming mortgage loan limit.
Irrespective of income level, assets in the bank, or high credit scores, if a loan application fell outside Fannie Mae's or Freddie Mac's lending standards, the application was turned away at the door. There were no exceptions to be made and "jumbo lending" disappeared.
Either your loan met conforming mortgage guidelines, or you had no loan. For the time-being, anyway.
When Fannie Mae and Freddie Mac were seized, the housing market crumbled. It was not a cause-effect type-thing; it was just occurring at the same time. So, in an attempt to stimulate housing and give relief to homeowners, the government passed the 2009 American Recovery and Reinvestment Act.
The law increased conforming mortgage loan limits in high-cost parts of the country including Marin County and Silicon Valley near San Francisco; and Potomac and Loudoun County near Washington, D.C.; while limiting loan limits to $417,000 everywhere else.
Residents of Larkspur, California, for example, can borrow up to $625,500 via Fannie Mae or Freddie Mac. The people of Chicago, Illinois, however, can'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, are stuck at $417,000. To borrow more is to be considered "jumbo".
For residents of these area, unfortunately, a $417,000 mortgage rarely gets the job done. Homes routinely sell for $1 million-plus and, in 2009, there weren't a lot of homeowners willing to make a $600,000 downpayment to get within conforming loan limits.
Homeowners were 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's appetite for mortgage risk is high, its jumbo mortgage rates are low. Conversely, when a bank's appetite for mortgage risk is low, its jumbo mortgage rates are high.
This is why you can shop jumbo mortgages at 3 banks and get three very different rates. You won't see that with conforming loans.
With conforming loans, a loan officer will tell you that "money costs what it costs"; there's a near-commodotization because all loans flow through the government. Rates are the same from bank-to-bank, and fees are often close, too.
With jumbo loans, there's disparity.
See, the terms "jumbo" and "super jumbo" -- these are words for a Conforming Mortgage World, as if Fannie Mae and Freddie Mac 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 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 merit.
Furthermore -- to a Main Street lender -- $417,000 is just another loan size; no different from a loan of any other size, really. Loans over $1 million are routine for banks that don't sell to the government. And the rates they offer are amazing.
The hardest part about shopping for a jumbo mortgage is that small, niche banks make loans much better than they market 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?
Get started with a rate quote.
Dan Green (NMLS #227607) is an active loan officer with Waterstone Mortgage. Email Dan ator call 513-443-2020.
Bonus: Click to get a free, no-obligation rate quote. I love to work with my readers!
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