Rates are finally receding this week, due to a large (and successful) sale of Treasuries. This is good for conforming loans (under $417,000 for a single family house) and jumbo conforming temporary loans (up to $725,000 in some geographic areas). However for those that need a little more money that puts them in the “jumbo” category.

 A jumbo loan is a loan amount  required for homes with higher prices. These loans are not bought by FNMA and are typically sold in investment portfolios or retained by the original lender. The interest rate was always a bit higher than conforming by as much as ½ percent. However, after the mortgage meltdown, the jumbo mortgage became scarce and expensive. I had seen the rates as high as 10% if you could even get it!  Slowly they had been creeping down to the mid 6% range which was great. If you needed a high loan amount you could finally get it. This was good for the housing market and high end stuff was beginning to move. We could see the light!!

Unfortunately, high end homeowners were not insulated from losing their jobs. As the unemployment rate crept up, so did the foreclosure rate-at all levels. As investors saw the foreclosure rates rise, the investment grade of jumbo mortgage portfolios were slashed. Because these loans are sold as global investments, the value is once again diminishing. If no one wants to buy these jumbo mortgage pools, then the lenders will have to keep them on the shelf longer and thus require a higher yield for themselves. (The lender only makes money when they roll over the money not by collecting interest payments.) What does this mean?  Higher rates for jumbo mortgages once again. Just when we thought we were on the mend!

Dale Siegel