Are Naples area buyers aware that on October 1, 2011 Fannie Mae and Freddie Mac will reduce the maximum mortgage loan amounts from $729,750 to $ 625,000?
The end result; a borrower seeking a government-backed mortgage for a $ 1-million property will be required to have a $ 370,000 down payment versus $ 270,000. Some analysts predict that this deadline may inspire purchasers to accelerate their buying timeframe in order to take advantage of the higher thresholds.
The National Association of Realtors reported that the sale of homes over $ 1 Million rose 5.1 percent in March 2011 over the same month last year. In Naples, a total of 273 homes were sold for over $ 1 Million within the first quarter of 2011, yet a majority of these properties were purchased with cash funds.
While these government run entities may be getting out of the jumbo loan market, Guy Cecala from Inside Mortgage Finance believes that other players are making a move. The market is already moving to compensate for the new regulations and private lenders will slide in to fill in the funding gap.
Private lenders will be keen to scoop up the overflow for the following reasons:
- Jumbo loans tend to be safer and more profitable; larger down payments of 30% are required versus the traditional 20% for typical loans.
- Higher interest rate payments are often associated with jumbo loans, which aids in mitigating risk.
- The terms of the loan are based on variable rates versus fixed interest rates, easing the burden for debt holders.
On the flip side, should a lender wish to write loans over $ 625,000 the lender will be required to hold the mortgage themselves or find a private investor to buy them. It seems as though all lending routes for jumbo loans may end up in the hands of private lenders? The impact of this eventuality may not be felt in our market for some time..which gives us all food for thought.
Source: “Rules for Jumbo Mortgages to Change This Year,” MSNBC.com ( April 25,2011)