February 11th, 2009 12:00 AM by Dana Bain
Nick Timiraos reports:
Real estate owners of many stripes saw something to celebrate in the Treasury Secretary’s sketch for a new financial rescue plan, from commercial real-estate owners to conventional mortgage borrowers. But one group still hasn’t been able to attract much sympathy: affluent borrowers of so-called jumbo mortgages.
The Treasury said that mortgage securities backed by commercial real-estate would become eligible for the Term Asset-Backed Securities Loan Facility, or TALF. And the department underscored a plan to buy up securities backed by Fannie Mae and Freddie Mac mortgages, which would effectively drive down mortgage rates on those conforming loans.OK?
But the Treasury’s “financial stability” fact sheet made only a passing reference to borrowers of mortgages that exceed limits by Fannie Mae and Freddie Mac, which start at $417,000 and can go as high as $625,500 in the most expensive housing markets.
The Treasury pledged to consult with the Federal Reserve Bank ”regarding possible further expansion of the TALF program to include other asset classes, such as non-Agency residential mortgage-backed securities.” Because private investors aren’t buying any residential-mortgage backed securities, Fannie and Freddie have filled the vacuum in the secondary market. But because the loan limits don’t allow Fannie and Freddie to buy loans larger than $625,500, there’s no secondary market for those jumbo loans. That means the cost of lending is higher because banks must keep jumbo loans in their portfolios.
While $600,000 will buy plenty of house in Peoria, it doesn’t go as far in coastal California, New York or Washington. Both houses of Congress have voted to raise the conforming limits to $729,750 in the most expensive markets, returning them to last year’s levels.
Banks have tightened standards on jumbo borrowers, which real estate professionals say has frozen high-end sales. While jumbo rates are low by historical standards, many borrowers aren’t able to get a loan without big down payments.
The lack of jumbo financing is a problem not just for new buyers, but for those who want to refinance. One example: jumbo borrowers whose adjustable-rate mortgages are about to reset and who are unable to refinance.
There are a few outfits that price there jumbo rates the same as conforming mortgages.
Premiere Mortgage Services Inc.
Sterling, MA 01564