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Jumbo Trouble


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2007 Sep 13, 6:18am   40,651 views  221 comments

by Patrick   ➕follow (55)   💰tip   ignore  

elephant

There have been several stories in the press lately about how it's getting hard to get a jumbo loan (>$417,000) lately, even with stellar credit and 20% down.

Have you run into anyone personally who had trouble getting a jumbo loan? What does this mean for Bay Area real estate? Did sales just completely stop?

Patrick

#housing

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1   Peter P   2007 Sep 13, 6:23am  

I can ask around, but I heard the interest rate is really lousy for jumbo loans.

2   Peter P   2007 Sep 13, 6:36am  

From the last thread:

we would be better off spending the money that we give every killer to pay for a decade (or two) of court appeals to the cops to catch more criminals and put them in jail…

The word "swift" is key.

No one should remain on death row for more than six months. Some innocent people may be wrongfully executed, but come on, how many people get killed on the highway every day?

3   Peter P   2007 Sep 13, 6:40am  

Back to topic...

Yes, the jumbo woe will have a huge impact on bay area. It will start a Mexican standoff between buyers and sellers. But prices will be sticky on the way down.

I have a feeling that the legislature is itching to "do something about it."

4   skibum   2007 Sep 13, 6:42am  

I really hope Randy isn't permanently discouraged from posting articles. I really enjoy the posts.

5   Peter P   2007 Sep 13, 6:44am  

I really hope Randy isn’t permanently discouraged from posting articles. I really enjoy the posts.

I hope so too. How did that happen again?

6   speedingpullet   2007 Sep 13, 6:47am  

Same here, skibum.

Re: jumbo loans - really interested to see what effect it will have on SoCal prices - you can't buy a detatched garage in Downey for less than $417K.

7   Peter P   2007 Sep 13, 6:47am  

512K with 20% down requires a 417K loan.

8   Glen   2007 Sep 13, 6:48am  

Bankrate shows the lowest rate on a 30 year fixed Jumbo on a $600K loan with 20% down and no points is 6.375%. For a 30 year fixed non-Jumbo loan of $400K with 20% down and no points the lowest rate is 5.5%.

So the spread is only .875%. I'm not sure how this compares with historical spreads.

But I guess the real issue is what it would take to qualify---presumably these rates are "full doc." You probably need to show a steady employment history, tax returns, sterling credit, and have a DTI less than 30%. Which means that if you have no other debt, you will need a gross income of around $150K and $120K in cash for a down payment in order to buy a $720K house with a $600K mortgage.

Although there are a lot of households that make $150K+, not that many people have $120K in cash sitting around (only a few bubble sitters who are waiting on the sidelines with cash from a prior home sale). I would guess that the number of buyers who qualify in LA is less than 1/10th of the number of homes on the market for $720K+. (I have no basis for saying that--just a pure guess.)

9   StuckInBA   2007 Sep 13, 6:52am  

Randy and Allah,

Don't talk to each other. But please do talk to the rest of us.

10   skibum   2007 Sep 13, 6:52am  

All this Democratic Congress talk about raising GSE limits on conforming loans STILL won't have as much impact on the Bay Area as you might think. They're talking about a limit in the range of $600k. Let's be generous and say that's the final number that gets passed. With a 20% dp, that's still only a $720k house. Still below the median SFH price in Santa Clara County, for example. It doesn't even reach the median for all homes (SFHs and condos) in San Mateo, San Francisco and Marin Counties.

11   skibum   2007 Sep 13, 6:53am  

So the spread is only .875%. I’m not sure how this compares with historical spreads.

Historical spreads between conforming and jumbos have been 10-20bp.

12   ThomasP   2007 Sep 13, 6:54am  

Whats the point since if you purchased a $400K home which in turn will sink by $100K down. The lender will have lost 25% of the value on the loan. Drop the keys off the bank and walk away... man there is going to
be lots of that...

13   SQT57   2007 Sep 13, 6:59am  

I hope Randy doesn't bow out either.

My husband was talking to the mortgage broker who handles the loans for his office (Merrill Lynch) and the guy said that right now getting any kind of loan is going to be tough. 100% financing is a thing of the past so anyone buying has to have immaculate credit and 20% down.

This jumbo loan thing is hitting people in a couple of ways. When you could get 100% financing on huge loans--with "pick a payment" prices, people were willing to buy no matter how irrational the price. But now the banks are demanding down payments, and without any home equity to roll over and no loans to cover the down payment, that's going to be tough for a lot of people. Add that to the fact that people can't get loans over $417k anymore, who is going to be able to afford to buy all the homes on the market now?

14   Bruce   2007 Sep 13, 7:00am  

Skibum, this Congress makes me nervous as well - in addition to the presumably ineffectual changes you mention, they're calling on FHA to ease qualifying, i.e., no down payment, reduced documentation. As if that weren't what landed us here in the first place. Sheesh.

15   ThomasP   2007 Sep 13, 7:04am  

"They’re talking about a limit in the range of $600k."

seems that starter home ie: $1,000,000 will need to drop down in a major way ....

16   Glen   2007 Sep 13, 7:08am  

ThomasP:

This is way California is a volatile market. Even many of those who have the ability to stick it out during the down market will not bother. If you had a choice between: (a) continue making payments on an underwater property with no recovery in sight for at least ten years, or (b) buy a new property identical to yours for $200K less than you paid, then default on the first house (Ca is a non-deficiency state) and have ruined credit for 10 years (but still have a house with more affordable payments), which would you choose? Leaving aside the moral dimension, the economics are clear. Buy the second house, then default on the first.

Ever wonder why so many people buy a new home before they sell their old one? Seems stupid. But maybe it is actually smart. Even if they end up defaulting on mortgage #1, then will still be homeowners.

17   Patrick   2007 Sep 13, 7:09am  

Doesn't a Mexican standoff require at least 3 participants?

18   skibum   2007 Sep 13, 7:20am  

@Bruce,

Changing FHA criteria will also have nil effect in the Bay Area. However, it's pathetic how Congress' solution to the consequences of a credit/mortgage bubble is to do what? Reinflate it! Throw more money into the pot even though you have a losing hand! Loosen credit standards when loose credit standards are what caused the problem in the first place!

I'm confident Congress' bumbling actions will have little effect at this point, as the housing crash train has left the station, and it's not stopping for a while. This is where if markets are allowed to work on their own a relatively efficient solution *may* happen - credit standards tighten appropriately, banks stop lending to people who never had a chance in hell of paying back their loans, and people who never should have bought homes will go back to renting.

But Congress is trying their darndest to prevent that from happening.

19   kahunabear   2007 Sep 13, 7:22am  

Here is one gated community that doesn't require a jumbo:

http://www.stockmania.com/2007_09_13_archive.html

20   HiThere   2007 Sep 13, 7:30am  

I hope Randy changes his decision. This is a blog. A very few of us know each other personally so an issue shouldn't be that personal. Randy, you need to be indifferent to people who have problems with in blogs.

Now coming back to the mortgage loan issue. I think it's little overstated. I can give you guys some real experience. Let me tell you, anybody with above 720 FICO and loan to debt ratio should qualify for loan just fine with 5-10% down payment. If you have any doubt I can provide you the phone number of a couple of mortgage brokers if you need to close a loan.

A friend of mine bought a house (not in bay area) and closed a loan last friday. The purchase price was 510,000. He did a 80+15+5 loan. 80% 1st, 15% 2nd and 5% down. The 1st was for 408000 at 6.67% and the 2nd was for 8.25%. It's still not a jumbo loan as the 1st is below 417000.

A lot of Credit Unions are offering Jumbo 1st mortgages at the same rate as non Jumbo as long as you have 720 FICO. Please check out www.dcu.org.

Only people who are suffering are ones with not so good FICO scores. The rest are doing fine.

21   sfbubblebuyer   2007 Sep 13, 7:55am  

I'm actually going to call the loan agent I was talking to back in Feb. when I started looking for a hosue to buy, and then lost my mind at the prices. I'll see if he's still willing to drop a huge chunk of money on us. We have 250k+ down payment, good credit, and two techy workerbee jobs, so it should be a decent test case.

22   skibum   2007 Sep 13, 8:17am  

Isn't this on the "Gold Coast" of New Jersey? Deep discounts? Swollen inventory? Ohhhh, Donald - where are you?

http://money.cnn.com/2007/09/13/real_estate/hovnian_discounts.ap/index.htm?postversion=2007091317

23   HelloKitty   2007 Sep 13, 8:19am  

The site I use to check current rates is Wells Fargo.

From experience they are the most honest about rates, you have to look at the APR not the Int rate, if you have an int rate lower than apr there are points being paid so dont look at int rate. BankRate sux is for mortgage rates IMO from my experence, probably due to broker bait/switch games.

https://www.wellsfargo.com/mortgage/rates/

The rate I watch is the 30 YR fixed Jumbo APR which is now at 7.6% on wells. It went over 7% for the first time since 2001 in August. Thats a huge huge development. Now why dont CD's pay 7% like in 2001?

24   lunarpark   2007 Sep 13, 8:25am  

You can play around with this eloan link to see the rate difference between jumbo loans, etc:

http://www.eloan.com/s/show/quoteinput?context=purch&purpose=purch&nextbtn=1&sid=K3NgUSb5mywyKWHQLwvNB4UebWI&user=ink&mcode=inkkw3ll8

25   HiThere   2007 Sep 13, 8:26am  

HelloKitty,

If you have above 720 FICO and low loan to debt you could do better than Wells Fargo.

Check out http://www.dcu.org/mortgage_he/index.html

I have a mortage loan through them. Their APR on JUMBO is 6.37% as of today and it's easy to become member.

26   HiThere   2007 Sep 13, 8:31am  

It's 6.37 APR on 30 Year Fixed JUMBO with 1 upfront point and 6.62% APR on 30 Year Fixed JUMBO with NO upfront point.

27   GallopingCheetah   2007 Sep 13, 8:31am  

Randy takes himself too seriously, gives himself too much importance. C'mon, who here "hates" Randy H? Hate is a strong word.

Pulling that stunt off is very childish. I'm sure all of us here will just move on and soon forget about him completely.

28   HiThere   2007 Sep 13, 8:34am  

Check this one, http://patelco.org/rates/fixed_rates.aspx

They are offering 6.625 on 30 Year fixed rate JUMBO up to 1 million.

29   wtf33   2007 Sep 13, 8:45am  

We seem to be getting quotes all over the board here, which I guess is not a surprise in a market in transition. If any L.O. is reading, and has a rate sheet handy, should be able to quote Fico/down/rate options for a few combinations...

30   Allah   2007 Sep 13, 8:47am  

All those Jumbo loan offers you are posting here are going to disappear eventually; and don't think just because they are advertising it means that you will get it. There are still ads like this one out there that stae you can get a 3.8% loan (bad credit ok) when it is obvious (I hope anyway) you can not.

It does seem that they want to throw money at it the problem regardless of what will become of the dollar; this is what scares me.

31   HiThere   2007 Sep 13, 8:56am  

Allah,

The links I posted are from Credit Unions and they generally don't lie. I have loans through them. Nobody knows what will happen tomorrow, I am only talking about today. You can assume whatever you want about tomorrow's doom and gloom but that doesn't change today's facts.

32   Bruce   2007 Sep 13, 8:58am  

OT aside to DinOR,

I think I knew 'or should have known' you're a musician, long as I've been reading here. So much for memory. But I suspected a great, honking tease all the same, as I'm a classical musician and devoted to all that derivative and unlistenable new composition.

Still, I do appreciate Randy Scruggs on dobro and Redbone on anything he chooses to play, so it's not like my world stops at Max Reger. (/OT)

33   HelloKitty   2007 Sep 13, 9:06am  

@HiThere,
Thanks for the link but in my experience if you try to get a lower than market rate with a broker (versus direct lender) they will ALWAYS jack up the rate last minute, add junk and/or high fees, or add points or add a pre pay penalty last minute. Also wells fargo only takes good credit, they arent offering 7.6 to poor credit - that is the good credit rate.

I can only recommend going to a direct lender like Wells, Countrywide, BofA, WaMu etc since the brokers are 100% crooked lying liars who lie. It appears the big lenders are cutting off brokers now - there will be very very few of them left in a few years. (just look at the ml-implode forums its become a bitch and moan site for unemployed brokers! )

Also I recommend everyone to double app even though you think you can 'trust' your lender, you cant rely on a lender to be able to close at what they tell you especially nowadays. So have a backup lender in pocket. It will only cost you a second appraisal if that.

Even Wells and these direct lenders will play games or change things last minute. I know a guy who last minute had to come up with 5% instead of 3% down payment, for him it was huge - he had to drain all his savings. And this was Wells and this is nothing compared to the shenanigans the brokers do. Anyway that was 2 years ago - the stories now are last minute they tell you you cant to 5% down you have to do 20% down. thats huge. (i read that from an sfgate article IIRC)

34   skibum   2007 Sep 13, 9:06am  

HiThere,

Sure, it's pointless to base decisions on doom-and-gloom scenarios, but keep in mind that you don't want this to happen to you:

http://online.wsj.com/article/SB118955540976824460.html?mod=yahoo_hs&ru=yahoo

AHM, in bankruptcy proceedings already, is refusing to pay off mortgage borrowers' obligations like property taxes, insurance while it's fighting with creditors, hoping for someone to buy part or all of their mortgage portfolio.

Caught in between are those people with mortgages through AHM. And AHM is, er, was one of the largest mortgage companies. RE: smaller credit unions and such, all I have to say is caveat emptor.

35   OO   2007 Sep 13, 9:08am  

I am sure Randy will come back, he is just taking a little walk to cool off.

Don't just take the bankrate's quote for granted. Talk to the mortgage brokers. It is very difficult to get a full doc loan at the advertised 6.375% or whatever low rate even if you fit the profile perfectly. If they lend to you at all, they will be downgrading you to "limited doc" rate which is another 2% higher.

I went through a refinance earlier this year, before subprime became a keyword in headline news. It was relatively a breeze, but still along the way, the broker was trying to find reasons why I couldn't qualify for the best "full doc" rate, although I am sure my profile is better than 99% of the clients walking through his door. Eventually I got the best rate but it was not without some bargaining and further documentation.

36   skibum   2007 Sep 13, 9:09am  

Bruce,

Sorry if my trashing of contemporary classical was taken as an insult. I'm not a fan (obviously), but I appreciate your dedication to an obscure craft. Can I ask, what instrument do you play?

37   HelloKitty   2007 Sep 13, 9:12am  

@HiThere,
Ok that link was a CU, sorry.

I typed in CA,LA county, 1 million dollar home with 100k down payment and it gave me 7.22 APR for a 30 year fixed.

The 6.2 rate is misleading, even on a CU site.(still beats wells, but i bet they would end up being really close when fees and costs are compared, at least they were last few loans I did at wells)

38   HiThere   2007 Sep 13, 9:14am  

HelloKitty,

I have closed a few loans in the past. From experience I can tell it's better to go through direct lender. Credit Unions are excellent choices. I have mortgage loans through them. I posted two links above. They are direct lenders. They never sell loans and I have loans through them. They are offering 6.37% 30 Year fixed Jumbo mortgage as of today if you have 720 or above FICO with 5% down. Check their website and call them.

39   HiThere   2007 Sep 13, 9:16am  

HelloKitty,

OK you don't want to believe.....that's APR. That 6.37% is including of all fees. Call them if you have doubt or visit their branch. If you live in CA you might find a branch of Patelco but their APR is 6.62% with 0.5 point.

40   HiThere   2007 Sep 13, 9:20am  

SKIBUM,

Have you heard of any Credit Union going bankrupt? I am talking about credit Unions and I already posted links. Call them if you have doubts.

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