Market Warms To Cheaper Jumbos

Much cheaper rates on new conforming jumbos is just what the market needed to encourage more buyers to buy and existing homeowners to refinance and save. See also: "California Cold To Jumbo Conforming Loans."

by Broderick Perkins
© 2008 DeadlineNews.Com

Deadline Newsroom - Think about a mortgage do-over.

You could be out hundreds of dollars a month if you signed for a large home loan last month.

This month, qualified home buyers and those refinancing their mortgage, are getting jumbo conforming loans with an interest rate nearly a full one percentage point cheaper than it was just weeks ago.

On a $500,000 mortgage that's a savings of more than $300 a month. On a $730,000 mortgage a whopping $500 a month. That's a lot of gas money.

The Economic Stimulus Act of 2008, temporarily raised the maximum amount on conventional conforming loans from $417,000 to about $730,000, hoping that would prompt lenders to lower rates on the larger mortgages to levels for smaller mortgages. Initially, risk averse lenders, buried under foreclosures, were not convinced.

In recent weeks, however, Fannie Mae and Freddie Mac announced they would purchase the larger conforming loans with the same requirements they use to purchase loans at the old conforming loan level.

That opened the flood gates on lower rates for bigger mortgages. Whoo hoo!

Fannie Mae and Freddie Mac have also reduced down payment requirements on some loans to as little as 3 percent down. More whoo hoo!

That move, along with new FHA loan plans, also put more mortgage money on the market.

And with home prices falling in many regions, happy days are almost here again for some housing consumers who can now drive a hard bargain with both sellers and lenders.

So here's the burning question: If you got a mortgage a month or so ago with the higher rate, should you refinance already?

Yes. Especially if you can get a no-point, no-cost refinance, says Quincy Virgilio, broker owner of Realty World CA Property Network in Campbell, CA.

"It is definitely a viable option to look into," said Virgilio, who is also president-elect of the Santa Clara County Association of Realtors.

Eric Nelson with the Honte Group, also in Campbell, agrees.

"If you are going to save $400 a month and it costs $4,000 to do the deal and they can recoup that cost in a year, we would recommend that. If they are going to save $400 a month and it costs $8,000 and they will take two years to recoup the cost, we probably wouldn't recommend it," Nelson said.

"Look for a no-cost, no-points loan, but make the simple calculation on how much you are saving and how much it is costing," and how long you'll stay in the home, Nelson added.

Sit down with a mortgage broker, loan officer or financial planner and do the math.

© 2008 DeadlineNews.Com

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Broderick Perkins, an award-winning consumer journalist of 30 years, is publisher and executive editor of San Jose, CA-based DeadlineNews.Com, a real estate news and consulting service, and the new Deadline Newsroom, DeadlineNews.Com's new backshop. In both cases, it's where all the news really hits home.

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California Cold To 'Jumbo Conforming' Loans

So far, jumbo conforming loans have had no greater-affordability effect on the housing hangover. Only more time will tell if cheaper jumbo loans will emerge. See also: "Market Warms To Cheaper Jumbos."

by Broderick Perkins
© 2008 DeadlineNews.Com

Deadline Newsroom - The larger the mortgage, the riskier the loan.

The riskier the loan, the tougher it is for a home buyer to get the mortgage approved.

That's a basic lending rule of thumb and it appears even federal intervention can do little to quickly change that fact.

Months after federal law, Economic Stimulus Act of 2008, temporarily raised the maximum amount on a conventional conforming loan from $417,000 to about $730,000, risk averse lenders have not been convinced to substantially lower interest rates on the larger loans.

The conforming loan adjustment was supposed to generate more affordable interest rates on the larger, so-called "jumbo conforming" loans. The hope was that the larger jumbo conforming loans would have nearly the same interest rates as the old conventional conforming loans.

Then, as the theory went, the lower rate on the larger loans would have encouraged more consumers to buy homes, or enable them to refinance to lower interest rate loans, especially in high-cost regions like California.

That has not happened. Yet.

Instead, in Silicon Valley, for example, the market has generated a new tier of jumbo conforming loan interest rates nearly a full percentage point higher than old conventional conforming loan rates.

But that's because the new jumbo conforming loans are still larger loans and even with federal backing, in today's credit crunched economy, the larger loans pose a risk too great for lower interest rates.

Federal government-sponsored Fannie Mae and Freddie Mac buy conforming loans and repackage them for sale in the secondary market of mutual funds, pension funds and investments around the globe.

But skittish investors demand higher yields (hence higher rates for the larger loans, compared to the smaller loans) because mortgage investments involving smaller loans (largely due to their toxic nature) have already ripped into their returns.

There is fear in the market.

The untested assembly-line production and mass-marketing of subprime and nontraditional mortgages was a disaster for both investors and homeowners. Right now investors simply aren't feeling so lucky about another untested brand of mortgage involving still larger loans.

In addition to higher interest rates than hoped for, the jumbo conforming loans also contain tougher underwriting requirements that demand higher credit scores and stiffer qualifications than conventional conforming loans.

Connie De Groot, a broker associate in Coldwell Banker's top Beverly Hills office, says jumbo conventional loans with lower rates are inevitable, just not over night.

"I don't understand why everyone is expecting things to change overnight. It took years to get to this point," she said.

De Groot says there's also limited demand from the public for a loan product with an unknown track record. The market simply needs time to embrace the new loans.

How much time?

Six months to a year, says De Groot.

"I'm very convinced and hopeful that with time people will understand the new options and take advantage of them and rates will go down," she added.

She suggests home shoppers and those seeking a refinanced mortgage ask about the new jumbo conforming loans as a part of a prudent approach to shopping around for home loans.

© 2008 DeadlineNews.Com

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Broderick Perkins, an award-winning consumer journalist of 30 years, is publisher and executive editor of San Jose, CA-based DeadlineNews.Com, a real estate news and consulting service, and the new Deadline Newsroom, DeadlineNews.Com's new backshop. In both cases, it's where all the news really hits home.

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California and the Economic Stimulus Act of 2008

California's real estate trade group revised its forecast on declining home prices and now says home values will drop as much as 10 percent this year. A $152 billion national economic stimulus program could cushion the larger-than-expected price fall -- or not.

by Broderick Perkins
© 2008 DeadlineNews.Com

Deadline Newsroom - The California Association of Realtors (CAR) may not have to eat too much crow after all.

Leslie Appleton-Young, chief economist for the Golden State's realtor association has had to revise her forecast to include a larger than expected decline in California's home prices this year.

But a new $152 billion economic stimulus package from Capital Hill could provide mortgage relief to home buyers in California and other high-cost housing markets.

If that happens, California's home prices may not fall as much as predicted in the new forecast.

Last year, Appleton-Young forecast the median price of homes would tumble by 4 percent this year in California.

Recently, she confessed the need to eat her own words when she revised the forecast to a projected 8 percent to 10 percent drop in prices.

Stephen Levy of the Center for Continuing Study of the California Economy, based in Palo Alto, CA said Appleton-Young's revised estimate is more accurate, but still off the mark.

He says a 10 or 15 percent decline in the state's median home price would be more likely this year. With a high rate of foreclosures, high-cost housing and tight money conditions, California is in the thick of the housing downturn says Levy and an about face isn't on the horizon.

Appleton-Young said falling prices can be a good thing. The faster home prices fall, the faster the market will hit bottom.

California home prices could get some buoyancy from legislation just signed by President Bush.

H.R. 5140, called the "Economic Stimulus Act of 2008," is designed to stimulate the economy and it has a provision that could cause Appleton-Young to revise her forecast again -- back to a smaller median home price decline in California.

The same legislation that will send tax rebate checks to millions of Americans this spring and offer other provisions to boost the anemic economy, will also raise the conforming loan level in some high cost areas from $417,000 to $729,750.

That will allow Fannie Mae, Freddie Mac, and the Federal Housing Administration to back more mortgages.

That means more home buyers in California will be eligible for conforming loans, which carry lower interest rates than non-conforming or "jumbo" loans.

The "more," however, may be limited.

Some critics aren't so sure the new loan levels will do much to save California's housing market.

Buyers still have to meet tight lending standards that often require no more than 35 percent of a household's gross income spent on the mortgage payment.

In some cases, lenders are rejecting appraised values by reducing by 5 percent how much of the appraised value they will actually finance, according to Realty World - California Property Network's broker Quincy Virgilio, who is also president elect of the Santa Clara County Association of Realtors.

And then there's the cost.

The median price in many areas ($743,500 for Silicon Valley in January) is so high, median income earners still won't qualify for loans despite higher limits.

In "Locked Out 2008," the California Budget Project recently reported, a buyer in Silicon Valley, for example, would have to have a household income of $170,352, with certain loan term and financial presumptions, in order to buy the median priced home.

Only 24 percent households in California can afford entry level housing, according to CAR

Some buyers in the Golden State and elsewhere, including the metro areas of New York, Boston, Los Angeles-Orange County, San Jose-Santa Clara in California, and Washington, D. C., will benefit from higher conforming loan limits, according to a Deutsche Bank report by Nishu Sood, a homebuilding analyst.

Marginal impact may occur in Miami, Sacramento, and California's Inland Empire region. Sood's report said prices aren't high enough in Phoenix, Las Vegas, Chicago and most major Southern markets, including Houston and Dallas for the new conforming loan level to make a difference.

There's also a question of declining home values and existing "upside down" mortgages that are now larger than the home is worth. Already skittish lenders aren't going to look favorably on refinance loan applications for those properties.

And, right now, the increase in the conforming loan level expires on Dec. 31, 2008.

It's a small window of opportunity that will close quickly if the provision for higher conforming loan levels isn't extended.

• Looking for more California housing market news? It's right here in the Deadline Newsroom and DeadlineNews.Com, two places to get ALL the news that really hits home.

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© 2008 DeadlineNews.Com

Broderick Perkins, an award-winning consumer journalist of 30 years, is publisher and executive editor of San Jose, CA-based DeadlineNews.Com, a real estate news and consulting service, and the new Deadline Newsroom, DeadlineNews.Com's new backshop. In both cases, it's where all the news really hits home.

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