RTC Mortgage Blog

More Jumbo Money!

I am seeing more lenders offering Jumbo loans - above the maximum Fannie Mae/Freddie Mac limit of $729,750. Some lenders will go to $2 Million and some even offer loans to $4 Million and higher.

This is great news for the higher priced markets that have been left out of the government's stimulus packages that increased conforming and FHA loans from $417,000 to $729,750.

The reason is that some of the bigger investment banking firms are allocating some money to the securitization of jumbo loans. Some of the names I've heard mentioned are Chimera Investment Corp., The Carlyle Group, PIMCO, and Goldman Sachs. Most of the firms working on a jumbo Mortgage-Backed Securities (MBS's) hope to originate recently funded loans that were underwritten to today's stricter guidelines. Until now, the few lenders willing to make jumbo loans had to be able to keep these loans on their own balance sheet. They also had to increase their reserves in case of future default. Therefore, most banks just couldn't afford to offer jumbo loans.

The securitization of Jumbo's still has a long way to go but the signs are very encouraging. Just a few months ago I was reading articles saying it could be years before there were buyers for Jumbo MBS's.

This is all good news for those of us in high-priced markets.

Update Regarding Stricter Documentation

A few weeks ago I wrote about the trend of lenders requiring more and more documentation. It's a result of Fannie Mae and Freddie Mac forcing lenders to buy back loans that are less than fully documented or just outside their guidelines. Having to buy back loans will put a lender out of business faster than almost anything except for fraud. So, you can see why lenders are over-conditioning now. They can't afford not to. I also just read that some investors are now paying upwards of 85 to 90 cents on the dollar for performing loans that have been sent back to the originator because-for one reason or another-they violated Fannie Mae or Freddie Mac underwriting standards. These buy-backs may not be a total loss but I can assure you that no lenders want to lose 10% or 15% either.

An interesting development is that there are now some large investor pools that are intentionally originating loans that are just outside the Fannie/Freddie guidelines at rates that are only slightly higher - say .25% to .50% above the low rates for standard loans. Their strategy is that once these loans are seasoned for a year or two, the performing loans would then be eligible for sale into Fannie or Freddie loan pools.

I have sources for the "just outside the guidelines" loans and at rates just slightly above the best rates. I think this is a great opportunity for those with slightly high Debt-to-Income ratios or Loan-to-Value ratios. It's also an opportunity for self-employed borrowers that don't quite have meet the two-year self employment requirement of Fannie and Freddie.

California Re-establishes Buyer Tax Credit

California Gov. Arnold Schwarzenegger has signed legislation that re-establishes and extends the state's $10,000 tax credit for homebuyers, a program that proved so popular last year that it ran out of money eight months before it was set to expire.

The measure sets a $10,000 credit, up to 5% of the purchase price, for buyers of newly built homes and a similar credit for first-time buyers who purchase existing homes. The credit will be available on "personal residences" purchased between May 1 and Dec. 31, and "principal residences" acquired between Dec. 31 and Aug. 1, 2011, as long as long as they were purchased pursuant to a contract executed on or before Dec. 31.

The $200 million allocated for the program, which is offered in addition to the revised and extended federal tax credit, will be split evenly between new homebuyers and buyers of existing houses. The credit comes with two caveats. It must be claimed in equal installments over a three-year period and buyers must live in the homes they buy for two years or forfeit the benefit.

The tax credit should help push prospective buyers off the fence, clear out inventory and jump-start the homebuilding industry, which will help create jobs and reinvigorate the state's economy.

It is expected that the state credit will have the same positive impact on the market as the federal write-off. Nearly 40% of first-timers said they wouldn't have purchased a home if the federal credit buyers were not offered.

Mortgage Rate Update: