When the mortgage market collapsed fixed rate jumbo loans disappeared. Adjustable Rate Mortgages (ARMs) have been available but at very high rates. When looking at the Market Tracker graphs on PDXBuyers.com it doesn’t take long to see that the market typically financed by the jumbo loan market has been hit harder than the conforming market. That’s starting to change. I met with Scott Kirkland of Team Kirkland Home Loans on Wednesday and he explains:
Conforming loans are those loan amounts under $417,000 while Jumbo loans are loan amounts over $417,000. Rates on these two types of mortgage products used to be very close in rate. This stopped about a year ago when only loans bought by Fannie/Freddie (backed by government) were the only “safe” bonds to purchase. When this happened, your portfolio lenders – those buying up Jumbo loan products – had no one to buy their loans thus driving up the rate on any loan over $417,000.
Housing product listed over $417,000 has been dramatically dropped in price because the interest rates were much higher on this more expensive paper. A conforming loan rate might be at 4.75% while the same borrower would have to pay 7-9% on a Jumbo loan. This has driven many buyer’s away from the $450+K house price range. We have seen competition in the lower price ranges pick up as of recently due to more expensive financing on any loan over conforming limits.
Jumbo rates are coming back! There are lenders out there today who have recognized this problem and are now offering Jumbo rates at 5.5% (5.75APR) on a 30-year fixed. These lenders have taken some of their government monies recently received to create a solution for those buyers and sellers affected by the high rates on Jumbo loans. Now that rates on loans over $417,000 are starting to return and become more in line with those conforming loans, expect the inventory levels in the higher price ranges to shrink.
We’ve seen how dynamic the mortgage market has become. What is available today may not be tomorrow. The loans have high loan to value ratios (30% in Portland) so there is a considerable down payment requirement. An FHA loan could require as little as 3.5%. Will the banks offering these loans run out of money due to popularity or will other banks return to the market? In many respects, the answer is vital to the real estate market.