Jumbo mortgage sticker shock

Good morning, again. The L.A.Times' E. Scott Reckard checks in on the jumbo market and reports that it is still messy and pricey:  "creditworthy borrowers are getting hammered if they want mortgages with payment options or "jumbo" loans..."

How bad is it? Reckard tells of a Manhattan Beach landlord (near perfect credit) trying to refinance a home that's worth in the $1.6 million range (he thinks), and currently carries a $650,000 mortgage. He's looking for a 30-year fixed with an interest-only pay option for the first 10 years. Last year he got a similar mortgage on another property with a 5.5% rate.

So what did WAMU quote him?

(Wait for it... Wait for it...)

"A loan officer at Washington Mutual Inc. quoted him a rate of 9.75%, saying that the lender 'had to charge such high rates so that they could sell off the loans'" ... He passed.

Doug Duncan of the Mortgage Bankers Assn.: "No one's buying mortgage-backed securities that are backed by jumbo loans."

Thoughts? Comments? Any recent stories from the real world?

Comments

[Rich]

Well that's how the market works, doesn't it? The lender set a rate based on what the market is willing to pay for a loan that can't be guaranteed by Freddie/Fannie and the borrower declined to buy at that rate. We aren't guaranteed of low-interest rate environments all the time; I've always had an excellent credit rating, but my first mortgage in the mid-90's was 8.75 percent. You adjust the price you're willing to pay for a house downward and get on with life until you can refinance.

It was implied that the landlord had an adjustable rate on an investment property, so this is not the type of borrower anybody is talking about helping out. This person isn't going to lose their shelter if their ARM adjusts upward, they merely lose an investment...

[mike]

so the irresponsible people ruined it for themselves and for the rest of us. my credit is stellar. what is my incentive to keep it good??????

[Steve Reynolds]

I asked for a $120,000 refi on an four plex out of state, 37.5 LTV. Bank of America quoted me 8.675 with 2.6 points, Indymac same. I'll ride the storm out with what I have.

[Cal]

Non-owner occupied - strike one
interest only - strike two
Jumbo - strike three

Also since WAMU isnt portfolioing this type of product he isnt going to get whatever horrible rate the secondary market is currently pricing these at. Im sure the guy in the story could get a better rate than 9.75 but it will be worse than 5.5. I bet it would be closer to 7.5 to 8. He'd probably have a easier time getting a option arm (more portfolio option arm lenders out there) or vanilla 30 yr fixed with that LTV than specifically a 30 yr fixed with 10 yr IO as that is more of a niche product.

[bode]

Calculated Risk beat you to it:

http://calculatedrisk.blogspot.com/2007/08/stories-from-credit-crunch.html

Tanta knows what she's talking about, so I won't bother paraphrasing her:

"I do not wish to be insulting or injurious, but I think it may be a while before non-owner-occupied jumbo IO refis in California get back to that 5.50% thing."

I'm not sure what exactly this example has to do with the average credit-worthy home owner in SoCal trying to find a place to live? An esoteric loan on an income property has a higher risk, and he didn't shop around. Makes for a nice story I guess, but I'm not sure why its relevent.

[Kaye Thomas]

This is the time to use a good local mortgage loan broker who will have access to many lenders and programs. Direct lenders can't compete with a mortgage broker at this time. Non owner loans have always been more expensive then owner occupied.

[rmf]

OK, think back to 1983. There we are in Hermosa Beach, dutifully calling around for mortgage quotes before we go in to bid on a probate property. The going rate was 15%. By paying a 3 point cash premium, we were able to get the rate down to 12%. We turned out to be the only bidders but it was a loooong transit of the judge's gavel from "do I hear any other bids?" to that final "whack."

All this sniveling and whining about entitlement seems to be coming from those who believe that there is a guarantee of security in life. Helen Keller's teacher, who was blinded as a young girl when a standing carriage horse's tail whisked at a fly and scratched her corneas (pre -antibiotics), said it best -- "Security is an illusion."

Living within one's means is a good way to discover one's character.

[Alan]

If this really is a no cash-out refi of a non-owner SFR for $650K on a $1.6 million value and it is full-doc (not clear from story) w/ a 760 FICO, then the guy's getting hosed at 9.75%. Assuming a point and costs, I'd guess 8% is more realistic. So something must be off, I'm guessing he wants to go "stated" income.

[Toby]

The problem is, the assest he's using to secure the loan is NOT worth the amount that he's asking.

Don't need to see it. Don't need to hear the details (that's the downside of a Bubble market), it's at least 200% over it's real value.

And he already has a 650,000 dollasr mortgage. So he's asking for 950,000 dollars when he only really has about 150,000 built up.

It's a no brainer, he's lucky to even get it for 9.75%

[Joe, Santa Monica]

This is from a contact at a private bank sent August 27, 2007:

"I have heard that for those seeking jumbo loans, it is much harder now. In some cases banks have raised prices on those loans a great deal to dampen enthusiasm. Our 10/1 ARM is priced at 6.625%, no points."

"In addition, we offer 1/8% discount for loans of $1.0MM and over. (6.5% for the 10/1 ARM noted below).

For HELOCs - They are priced Prime Minus 1% for loans between $100M and $1.0MM with LTV of less than 80% or lower."

The contact at the bank states that the low rate is because the bank does not sell its loans.

[Morgan]

If you don't have a conforming loan amount then you are going to pay through the nose - that is if you can get financing at all. The best option often is to split these loan amounts in to a conforming 1st and then a larger 2nd - the blended rate is often better than the jumbo rate right now. I'm not saying that would be the case in this instance; since there aren't many seconds (any) that will go behind a neg-am right now; but it is a viable strategy for other loan types.

[don Hosek]

Here's a basic rule of thumb: If you need an interest-only mortgage to not go negative cash flow on a rental property then you paid too much.

I've looked at some duplexes in my neighborhood and couldn't come up with a (realistic--because we're not going to see significant capital appreciation on real estate in the near future) scenario where I wouldn't be better off leaving my money in the bank and earning 5% on it rather than paying the prices that are being asked.

[doug]

I don’t understand why they haven’t made California part of the same group as Hawaii and Alaska, 417k for a standard loan is unrealistic for the LA market