Construction Reinvented.
Financial Crisis Now Affects the Wealthy: Jumbo Loan Defaults Increase
Luxury homeowners are falling behind on mortgage payments at the fastest pace in more than 15 years, a sign the U.S. financial crisis that began with the poorest Americans has reached the wealthiest, according to a report by Bloomberg, written by Bob Ivry.
About 2.57 percent of prime borrowers who took out jumbo loans last year were at least 60 days delinquent, a percentage reached within 10 months and the fastest since at least 1992, according to LPS Applied Analytics, a mortgage data service in Jacksonville, Florida. That’s almost twice as quickly as 2007 borrowers fell behind and a level 2006 owners haven’t attained after almost three years.
What is the definition of a jumbo loan? It is any loan that exceeds the maximum borrowing limit for loans guaranteed or secured by a government agency. Currently the Fannie-Freddie cap is set at $417,000 in most places and up to $729,750 in areas with higher home prices. The average credit score for 2008 jumbo loans was 762, LPS Applied Analytics said. Such scores are used to assess risk.
The jump in late payments on jumbo loans, while still lower than the 20 percent delinquencies in subprime mortgages, signals that the borrowers with the most money and the best credit are hurting as the U.S. recession deepens in its second year. It also means these loans will be even more difficult to obtain and more expensive to pay off.
“The biggest influence in rising delinquencies is related squarely to the economy rather than poor underwriting,” said Keith Gumbinger, vice president of HSH Associates, a Pompton Plains, New Jersey-based mortgage research firm. “We are apparently all suffering to some degree. It’s certainly more severe for some but still, it’s pretty much widespread.”
Raymond Young bought his lakeside home in Miami four years ago for $2 million cash and in 2006 took out a $1.4 million jumbo mortgage to pay for a real estate venture in Texas. Now, with home prices in his area down 40 percent from their 2006 peak, according to the S&P/Case-Shiller Home Price Index, Young needs to refinance because the Texas investment isn’t paying off and his income has dried up. He can’t find a bank to help.
“They’re telling me the house is only worth $1.3 million,” said Young, 46. “I’m upside down. I’m stuck. I’m in bailout mode but they’re bailing out banks and they’re not bailing out homeowners.”
President Barack Obama’s Homeowner Affordability and Stability Plan, announced this week, has no provision to help jumbo mortgage borrowers.
About 1.92 percent of homeowners with 2008 mortgages backed by Fannie Mae and Freddie Mac fell at least 60 days behind, LPS Applied Analytics said. Jumbo loans are bigger than what the two government-controlled agencies buy or guarantee, and Obama’s plan focuses on shoring up mortgages eligible to be bought by Fannie and Freddie.
Jumbo lending slowed in the fourth quarter to $11 billion, or 4 percent of the mortgage market, the lowest quarterly amount since Inside Mortgage Finance started tracking that data in 1990. In 2007, jumbo loans made up 14 percent of total U.S. mortgage originations, according to the Bethesda, Maryland-based publication.
The top five U.S. jumbo lenders -- Chase Home Finance LLC, Bank of America Corp., Washington Mutual Inc., Wells Fargo & Co. and Citigroup Inc. -- originated a combined $55.3 billion in jumbos in 2008. They lent just $4.3 billion of that during the last three months of the year, according to Inside Mortgage Finance.
Banks don’t want to make jumbo loans because holding them on their books means they have to keep sufficient money in reserve in case borrowers quit paying, Inside Mortgage Finance Publications Chief Executive Officer Guy Cecala said.
The national average for a 30-year fixed-rate jumbo mortgage was 6.57 percent this week compared with 5.34 percent for a conforming loan, according to White Plains, New York-based financial data provider BanxQuote.
The difference in interest rates between jumbo loans and prime conforming mortgages, or mortgages eligible for sale to Fannie Mae and Freddie Mac and available to borrowers with top credit scores, had been about 20 basis points “for several decades,” according to BanxQuote CEO Norbert Mehl.
Read the full story here.
About 2.57 percent of prime borrowers who took out jumbo loans last year were at least 60 days delinquent, a percentage reached within 10 months and the fastest since at least 1992, according to LPS Applied Analytics, a mortgage data service in Jacksonville, Florida. That’s almost twice as quickly as 2007 borrowers fell behind and a level 2006 owners haven’t attained after almost three years.
What is the definition of a jumbo loan? It is any loan that exceeds the maximum borrowing limit for loans guaranteed or secured by a government agency. Currently the Fannie-Freddie cap is set at $417,000 in most places and up to $729,750 in areas with higher home prices. The average credit score for 2008 jumbo loans was 762, LPS Applied Analytics said. Such scores are used to assess risk.
The jump in late payments on jumbo loans, while still lower than the 20 percent delinquencies in subprime mortgages, signals that the borrowers with the most money and the best credit are hurting as the U.S. recession deepens in its second year. It also means these loans will be even more difficult to obtain and more expensive to pay off.
“The biggest influence in rising delinquencies is related squarely to the economy rather than poor underwriting,” said Keith Gumbinger, vice president of HSH Associates, a Pompton Plains, New Jersey-based mortgage research firm. “We are apparently all suffering to some degree. It’s certainly more severe for some but still, it’s pretty much widespread.”
Raymond Young bought his lakeside home in Miami four years ago for $2 million cash and in 2006 took out a $1.4 million jumbo mortgage to pay for a real estate venture in Texas. Now, with home prices in his area down 40 percent from their 2006 peak, according to the S&P/Case-Shiller Home Price Index, Young needs to refinance because the Texas investment isn’t paying off and his income has dried up. He can’t find a bank to help.
“They’re telling me the house is only worth $1.3 million,” said Young, 46. “I’m upside down. I’m stuck. I’m in bailout mode but they’re bailing out banks and they’re not bailing out homeowners.”
President Barack Obama’s Homeowner Affordability and Stability Plan, announced this week, has no provision to help jumbo mortgage borrowers.
About 1.92 percent of homeowners with 2008 mortgages backed by Fannie Mae and Freddie Mac fell at least 60 days behind, LPS Applied Analytics said. Jumbo loans are bigger than what the two government-controlled agencies buy or guarantee, and Obama’s plan focuses on shoring up mortgages eligible to be bought by Fannie and Freddie.
Jumbo lending slowed in the fourth quarter to $11 billion, or 4 percent of the mortgage market, the lowest quarterly amount since Inside Mortgage Finance started tracking that data in 1990. In 2007, jumbo loans made up 14 percent of total U.S. mortgage originations, according to the Bethesda, Maryland-based publication.
The top five U.S. jumbo lenders -- Chase Home Finance LLC, Bank of America Corp., Washington Mutual Inc., Wells Fargo & Co. and Citigroup Inc. -- originated a combined $55.3 billion in jumbos in 2008. They lent just $4.3 billion of that during the last three months of the year, according to Inside Mortgage Finance.
Banks don’t want to make jumbo loans because holding them on their books means they have to keep sufficient money in reserve in case borrowers quit paying, Inside Mortgage Finance Publications Chief Executive Officer Guy Cecala said.
The national average for a 30-year fixed-rate jumbo mortgage was 6.57 percent this week compared with 5.34 percent for a conforming loan, according to White Plains, New York-based financial data provider BanxQuote.
The difference in interest rates between jumbo loans and prime conforming mortgages, or mortgages eligible for sale to Fannie Mae and Freddie Mac and available to borrowers with top credit scores, had been about 20 basis points “for several decades,” according to BanxQuote CEO Norbert Mehl.
Read the full story here.
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Tags: jumbo loan defaults, special report, wealthy home buyers
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