The credit crisis annihilated the jumbo loan market. Banks simply stopped making loans available for “expensive” homes”. Jumbo mortgages by definition are those that are too big to be bought by government-backed agencies, such as Fannie Mae and Freddie Mac. The limits vary by region, and in Collier County a buyer in search of a mortgage above $417,000 would be seeking a jumbo loan.
According to Inside Mortgage Finance Publications Inc, jumbo mortgage lending increased by 20% in the 2nd quarter of 2010 as compared to first quarter figures. Originating $18 billion in jumbo loans for the quarter is a healthy start though there is still room for improvement.
Historically jumbo loans comprised roughly 18 % of mortgages issued. Between 2004 and 2007 this figure swelled to 20% and since 2009 only 5 % of all loans issued could be categorized as jumbo loans notes Guy Cecala, CEO of Inside Mortgage Finance. Banking institutions and mortgage bankers are easing back into this arena and point to borrower demand and falling interest rates as their source of motivation. Some big players in the market like J.P Morgan Chase and Wells Fargo have begun to test these waters. Thomas A Kelly, a Chase spokesman commented, “overall lending for mortgages is up, and jumbos are up more, part of it is that we have the capacity and we are making it available to our customers”.
Yet borrowers themselves may find the act of obtaining jumbo loans a challenge. Buyers seeking to purchase a vacation home or condo may find qualifying for a jumbo loan via a large bank to be difficult. Processing delays, rigid requirements and bureaucratic red tape is pushing borrowers to seek alternative resources. A mortgage specialist or local lender may be able to structure the loan in an efficient and timely manner. Regardless of the mortgage source, underwriting continues to be strict. Borrowers need to exhibit stellar credit profiles, provide detailed income and personal documentation, and must contribute at least 20% of their own funds toward the purchase of the property.
The resurgence of jumbo loans is a step in the right direction. The increase in activity from both regional and national banks indicates that the steel grip on lending has begun to ease. Borrowers that have been sitting on the sidelines, due in part to the lack of financing options, should view the revival of jumbo loans in combination with low interest rates as motivating factors.
While the inventory level of new and resale homes in Naples remains on par with previous months, the re-introduction of jumbo loans will impact the availability of homes. No one knows exactly when the scales will tip in favor of sellers over borrowers. Yet when purchasing power becomes fluid in all price brackets there is a tendency for the tide to change on the proverbial dime.