Rates, however, have come down dramatically in recent months, arousing more interest from consumers.

Jumbo mortgages are typically more than $419,000, and super jumbo mortgages are more than $729,000 in towns with expensive real estate.

New Jersey ranked second, nationally, in the number of jumbo mortgages issued last year, according to CBMI, a Fairfax, Va., company that tracks trends in real estate. Nevertheless, the number of jumbo mortgages in the state has dropped over the last five years. Last year, less than 16,000 jumbo mortgages were made or refinanced just in New Jersey — down from 57,122 in 2005.

Compared with a year ago, there has been a small recovery in the high-end housing market.

A year ago, jumbo mortgage rates were as much as 1.7 percentage points above conventional mortgages since Wall Street was unable bundle such loans into securities and sell them off to investors.

The big lenders are gone from the market, but the local banks have stepped in with competitive rates.

However, home buyers now seem to be facing a lot of scrutiny.

With a credit score of 680, and you’re only putting 10 percent down, you will be paying an extra fee in rates or additional points on the loan.

As larger banks have held-back on large loans, community banks have become increasingly aggressive attempting to fill the void. A rise in big loan applications has been noticed, and it will most probably be ahead of last year in terms of jumbo mortgages.

Meanwhile, Roma Bank of Robbinsville is making a push into high net-worth areas such as Princeton and West Windsor. Roma had been offering jumbo mortgages of as much as $700k last month for about 5.4 percent. Other banks have been offering jumbo mortgages that can range from 5.5 percent to 6 percent, or about half a point more above conventional loans.

Jumbo mortgages were 25 percent of ISB Mortgage’s total loan business of $1.3 billion last year. In January — usually a slow month — that percentage jumped to 32 percent.

Some jumbo mortgage clients are attempting to take out adjustable-rate mortgages to keep their payments low for a few years, he said. Such loans often are a percentage point lower than a fixed-rate mortgage for people who do not believe they will be in the house for 10 years.

However, jumbo mortgages are no longer required for some towns, such as Hamilton in Mercer County, since the drop in housing prices has dropped so dramatically.

No related posts.

But in a boon for borrowers in California’s expensive housing markets, the jumbo mortgage market is beginning it’s return to normal.

Two weeks ago, the average interest rate on 30-year fixed-rate jumbo mortgage dropped to 5.79%, a nearly five-year low, according to Informa Research Services. It inched up to 5.88% on Tuesday, still very attractive by historical standards. The average is down from well above 7% in late 2008.

Rates are even lower on so-called hybrid adjustable mortgages, on which the rate is fixed for, say, five years and then adjusts annually.

Banks are also relaxing slightly some of their requirements for a jumbo mortgage. That’s an encouraging sign because the market for jumbo mortgage, in contrast with the rest of the mortgage business, isn’t being propped up by the governement.

The lower rates and easier terms reflect new confidence among banks in the housing market. That’s because, by definition, jumbo mortgages are too big to be bought by Freddie Mac and Fannie Mae or to be insured by the Federal Housing Administration. Plus, the private market for mortgage-backed bonds dried up when the meltdown hit. So lenders making jumbo mortgages these days must be willing to take the risk of keeping them in their portfolios.

The maximum amounts for Freddie Mac and Fannie Mae “conforming” mortgages, and for FHA mortgages, are set by Congress. The cutoff for single-family homes was $417,000 from 2006 until February 2008, when lawmakers raised it temporarily to $729,750 in certain high-cost areas, including Los Angeles, Orange and Ventura counties. Conforming loans peak at $500,000 in Riverside and San Bernardino counties and $697,500 in San Diego County.

The increased upper limits, which have been extended until the end of this year, have created a three-tier system in expensive areas, mortgage professionals say: loans of up to $417,000, which are the easiest to obtain and carry the lowest rates; “conforming jumbos” from $417,000 to $729,750, which are somewhat harder to get and have slightly higher rates; and true a jumbo mortgage, with the toughest standards and highest rates.

In the boom years of 2005 and 2006, interest rates were typically no more than a quarter of a percentage point higher on jumbo mortgages than on conforming loans, according to Informa Research. That widened as the mortgage meltdown intensified and home prices dropped in late 2007. The spread ballooned to nearly 1.7 percentage points in early 2009 after the entire credit system froze.

But this year the rate spread has narrowed to less than a percentage point. It could shrink even more if conforming-loan rates rise as expected after the Federal Reserve wraps up a $1-trillion-plus program to assist the market for conforming loans next month.

In addition to lower rates, down-payment requirements are being relaxed in some cases. For example, to write a jumbo mortgage in coastal areas of Los Angeles and Orange counties, Wells Fargo Home Mortgage demands a 20% down payment or that percentage of equity, down from 25% last year.

The reason: High-end home prices are stabilizing in those coastal counties. But the bank still requires higher down payments in the Inland Empire and other battered housing markets such as Florida, Nevada and Arizona, where prices for jumbo-size homes don’t appear to be stabilizing, he said.

Jumbo mortgages remain much harder to get than before the credit crunch and recession. Borrowers typically must have a credit score of at least 700, compared with boom-era minimums in the 600s.

What’s more, unless their down payments are very large, borrowers must provide evidence of high income, have sizable bank accounts as a cushion against the unforeseen and occupy the houses themselves.

But there are clear signs that the jumbo mortgage market has loosened. One is an increasing availability of “stated income” loans — those that don’t require proof of income — of as much as $2 million to borrowers with at least a 40% down payment.

Also, instead of a true jumbo mortgage, some “piggyback” second loans are available again to help certain borrowers with 25% down payments pay for high-priced homes.

Of course, adjustable, stated-income and piggyback loans were big contributors to the mortgage meltdown. But such provisions are less risky if a borrower has 25% to 40% equity.

Despite the confidence in the market that such terms imply, lenders and mortgage investors are still dealing with piles of bad loans made during the boom.

Delinquencies of 60 days or more on prime jumbo mortgages that were packaged into securities jumped to 9.6% in January, up from 3.7% a year earlier, Fitch Ratings reported this month.

The jumbo delinquency rate in California jumped to 11.3% from 4.1% a year earlier.

For now, the jumbo mortgage market remains limited to the volume of loans that banks are willing and able to keep on their books. But there is hope for a return to private outside funding.

Although no jumbos have been turned into securities for at least two years, packages of delinquent jumbos have begun to be sold again to “vulture” investors, a sign that the secondary market for the loans may revive.

The ice sheet is starting to crack here and there.

Related posts:

1. Continuation of Deterioration in Jumbo Mortgage Market according to Fitch
2. Lenders easing up on jumbo mortgages
3. Jumbo Mortgage Delinquencies Soar

As serious delinquencies climbed for the 32nd consecutive month, loan performance among RMBs’s (private residential mortgage-backed securities) showed continued weakness.

Overall, jumbo mortgage RBMS at a minimum of 60 days past due grew to an astounding 9.6 percent last month, a rise from 9.2 percent the previous month, Fitch’s data shows.

The firm claims prime jumbo mortgage delinquencies accelerated in 2009, although they began to rise in mid-2007, almost tripling throughout the year. Although, Fitch does note that pre-2005 jumbo mortgage loan delinquencies still remain much lower than the most recent originations.

The five states – Florida, Virginia, California, New Jersey and New York – which all remain as the states with highest volume of prime jumbo mortgage outstanding, comprise about 2/3 of the $381b jumbo mortgage market.

Although the largest jump of the above five was Florida which although holding 6% of the market share, now retains the worst serious jumbo mortgage delinquency rate of 16.6%.

Related posts:

1. Jumbo Mortgages Rapid Deterioration Leads Moody’s to Increase Loss Projections
2. December Hike in Number of N.J. Jumbo Mortgage Defaults
3. Is the Jumbo mortgage market beginning to thaw?

Borrowers in New Jersey who were 60 days or more behind in their bills tripled in December, compared to the same period in 2008. More than 7 percent of “jumbo” borrowers were delinquent by at least two months in the last month of 2009.

Jumbo refers to debts that are too large to be bought by government-supported lenders of last resort such as Freddie Mac or Fannie Mae.

Nationwide, the number of borrowers that have fallen behind by 60 days or more, rose to 9.2 percent in December of last year, up from 3.2 percent in December 2008, according to a Fitch Ratings.

Usually, these borrowers’ performance is driven by unemployment, said Vincent Barberio, a Fitch Ratings credit ratings analyst. “Once unemployment rates start to climb, a significant number of prime borrowers get under water on their mortgages,” he said.

About 14 percent of all prime-mortgage borrowers were “underwater” in September — meaning they owed more on their mortgage than their property was worth –, according to Fitch Ratings.

In New Jersey, the state’s unemployment rate has only started creeping away from it’s 26-year high of 9.8 percent. In November, it was 9.4 percent, according to the U.S. Bureau of Labor Statistics.

And some estimates put “white collar” unemployment at record high levels. In New Jersey, more than half of all those unemployed are “knowledge-based workers,” said James Hughes, dean of the Edward J. Bloustein School of Planning and Public Policy at Rutgers University.

“Initially the lower and moderate of the (home owner) segments were really hit by the crisis,” he said. “Now, we’re seeing the upper-end of the market hit, and these individuals are the ones that are in trouble now.”

The five states with the largest numbers of prime borrowers (those that are considered the “safest” by lenders) are:

– California: 10.8 percent, up from 3.5 percent (44 percent share of the market)
– New York: 5.8 percent, up from 1.8 percent (7 percent share of the market)
– Florida: 16 percent, up from 7.3 (6 percent share of the market)
– Virginia: 5.4 percent, up from 2.3 (5 percent share of the market)
– New Jersey: 7.1 percent in 2009, up from 2.3 (4 percent share of the market)

Related posts:

1. Continuation of Deterioration in Jumbo Mortgage Market according to Fitch
2. Jumbo Mortgage Delinquencies Soar
3. Jumbo Mortgages Rapid Deterioration Leads Moody’s to Increase Loss Projections

Moody’s now expects cumulative lifetime loss projections for US prime residential jumbo mortgage backed securities (RMBS) of 3.8% for 2005 securitizations, 8.0% for 2006 securitizations, 10.9% for 2007 securitizations and 12.3% for 2008 securitizations.

“Since our previous loss projections published on March 2, serious delinquencies (defined as loans that are 60 or more days delinquent, in foreclosure, or held for sale, i.e. real estate owned or REO) on prime jumbo pools for the 2005, 2006, 2007 and 2008 vintages have increased substantially to 3.3% from 2.2%, 6.2% from 3.8%, 7.9% from 4.8% and 8.0% from 4.6%, respectively. We expect delinquencies and losses on prime jumbo pools to continue to rise in 2010 as house prices continue to decline and unemployment levels continue to rise. In the previous loss projection update we expected these key macroeconomic variables to moderate by the end of 2009.”

“The loss upon default (severity of loss) on jumbo loans has also been rising in the last year. As house prices continue to depreciate, future loss severities are expected to reach around 50% on average, putting further pressure on loss expectations.”

“Further, recent government efforts to curb loan defaults and foreclosures through loan modification have thus far failed to gain the previously expected traction3, prompting us to reduce the average modification benefit to projected prime jumbo losses across vintages from 15% predicted earlier to less than 5% going forward.”

Related posts:

1. Continuation of Deterioration in Jumbo Mortgage Market according to Fitch
2. Jumbo Mortgage Delinquencies Soar
3. Is the Jumbo mortgage market beginning to thaw?

Interest-only loans were commonly used to purchase homes valued at $750,000 or more. These exotic jumbo mortgages allowed borrowers to postpone making principle payments for three, five or seven years, but now those interest-only periods are ending, and the loans are beginning to reset to much higher payments.

At the same time, many of the white-collar workers who took the loans are facing job losses or cuts in their cash bonuses. If Wall Street bonuses shift from predominately cash to higher portions of stock that must be held for several years, the high-end housing market likely will face an even big shock.

Many of these wealthier homeowners may have planned to refinance their option adjustable-rate or interest-only loans before the resets, but they can’t do so because their homes are now worth less than the value of the mortgage. If they can’t afford their new, higher payments, default is the likely option.
Five States Feel the Most Pain

Making matters worse, the supply of unsold homes on the market priced above $750,000 continues to climb. JPMorgan Chase analysts estimate that it will take until at least 2012 for this market to recover. They also predict that peak-to-trough declines could surpass 60% in the high end, compared to 40% for the rest of the market.

Two-thirds of prime jumbo mortgages are concentrated in five states: California, New York, Florida, Virginia and New Jersey. The rates of prime jumbo mortgages that are 60 days or more delinquent include: California, 10.8%, up from 3.5% in 2008; New York, 5.8%, up from 1.8%; Florida, 16%, up from 7.3%; Virginia, 5.4%, up from 2.3%; and New Jersey, 7.1%, up from 2.3%.

California has the largest share of the jumbo marketplace with 44%. The next highest share is in New York with 7%, followed by Florida with 6%, Virginia with 5% and New Jersey with 4%.

Jumbo mortgage borrowers face much higher interest rates and lending standards as well. Most banks that make jumbo loans offer them at interest rates that are 1% or more higher than the rates for loans that don’t exceed the limits of Fannie Mae and Freddie Mac, which range from $417,000 in most of the country to as high as $729,750 in the most expensive housing markets. In addition to higher interest rates, banks are looking for down payments of at least 20% to 30% or more. This not only makes it harder to refinance; it also makes it harder to find a buyer for a home one can no longer afford.

Luckily for the banks, jumbo mortgages are not a major part of their portfolios. In the first quarter of 2009, homes priced over $750,000 accounted for only 2.3% of all sales, compared to 4.4% at the top of the housing market in 2007.

Click Here to view the original article at Daily Finance

Related posts:

1. Continuation of Deterioration in Jumbo Mortgage Market according to Fitch
2. December Hike in Number of N.J. Jumbo Mortgage Defaults
3. Is the Jumbo mortgage market beginning to thaw?

The answer may come soon. According to securities analysts, some underwriters on Wall Street are discussing the possibility of bringing small quantities of private-label mortgage securities to market within a few months. The first such sales are likely to consist of securities backed by high-quality jumbo mortgages, loans too big to be backed by government agencies.

The securitization market “for newly originated mortgage loans is getting closer to reopening” says Tom Deutsch, executive director of the American Securitization Forum, an industry group. Bryan Whalen, a managing director at Trust Co. of the West, says Wall Street dealers have been having “hypothetical” chats with investors about possible deals. Mr. Whalen estimates that the first offering could perhaps total $250 million to $500 million and debut during the first quarter of this year.

Historically, most mortgage securities were issued or backed by Fannie Mae, Freddie Mac and the Federal Housing Administration. But during the housing boom, investment banks and mortgage banks dove into the market and began issuing their own brand of mortgage-backed securities. These private-label mortgage securities were often backed by riskier loans, including subprime mortgages and loans made to borrowers who didn’t not fully document their income and assets.

At the peak of the housing boom in 2006, private-label mortgage securities accounted for 56% of the $2 trillion in mortgage securities sold to investors, according to Inside Mortgage Finance, an industry publication. But the private-label market has been almost dead since the third quarter of 2007. Virtually all mortgage securities now offered are those backed by government agencies, and demand for those securities has been so tepid that the Federal Reserve has become the largest buyer.

But there are indications that some investors are ready to take a second look. Tom Capasse, a principal with Waterfall Asset Management LLC, notes that there is a dwindling inventory of private-label securities in the secondary market that sets the stage for new issues. Any deal would mark a milestone for efforts to reduce the mortgage market’s current dependence on government coverage of default risks.

Credit-rating firms say they have been requested to review several potential deals, which comprise of fixed-rate loans and mortgages that carry a fixed-rate for the first few years. “People are trying to test the waters,” says Linda Stesney, a managing director at Moody’s Investors Service, who says there has been an increase in inquiries from potential issuers of mortgage securities, including big banks and Wall Street firms.

Even if the market’s first offering is successful, it isn’t likely to trigger an instant flood of new issues. One limiting factor is that lenders aren’t originating large numbers of nongovernment-backed mortgages. The maximum size of “conforming” loans—those that can be sold to Fannie Mae or Freddie Mac—has risen to $729,750 in the priciest housing markets, up from $417,000 during the housing boom. That means that most home buyers can get a conforming loan rather than a jumbo mortgage, which carry higher interest rates. Sales of higher-end homes in many markets have been sluggish, further reducing the supply of mortgages tied to the homes.

In addition, investors are likely to demand “super-clean credit,” further lowering the supply of loans eligible for packaging, says Chandrajit Bhattacharya, a mortgage strategist at Credit Suisse Securities. He expects average credit scores to be around 750 and borrowers to have 30% to 40% equity in the property.

Another obstacle is pricing. Some analysts believe the yields needed to attract buyers will possibly be too high to make the transactions profitable for lenders. At current rates, “you can’t profitably originate new jumbo mortgages … sell off the pieces and securitize it profitably,” says Laurie Goodman, a senior managing director at Amherst Securities Group. Rates on jumbo loans currently average 6%, according to HSH Associates.

To be eligible for purchase by many insurers, pension funds and mutual funds, any new deal would need a big slice of bonds with triple-A ratings.

But ratings firms are still facing some key questions. One is “has there been a psychological change in the U.S. borrower that will make them more readily walk away [from their mortgage] in the future,” says Huxley Somerville, a group managing director with Fitch Ratings. If borrowers are more likely to walk away, any deal would have to be structured to protect against higher expected losses. Another open question is how much more home prices are likely to drop over the next few years.

In reviewing new deals, Standard & Poor’s says it will also look at the lender’s past performance, management and organization. Pools will also be sampled by third-party quality-control experts.

While a triple-A rating may be necessary to get a deal off the ground, investors are also seeking more details on the quality of underlying loans. “In the old days, the ratings agencies drove the looks of those deals,” said Edward Gainor, a securities lawyer in Washington, D.C. “In the post-collapse world, the investors will very much be at the table.”

Click Here to view the original article at the Wall Street Journal

Related posts:

1. Is the Jumbo mortgage market beginning to thaw?
2. Jumbo Mortgage Delinquencies Soar
3. Continuation of Deterioration in Jumbo Mortgage Market according to Fitch