The mortgage market has shrunk dramatically over the last 2 years. Not in volume, thanks to low rates and a refinance boom volume is strong. But the market has shrunk in the what types of mortgages are available. There used to be a wide variety of mortgage options available but with the mortgage meltdown the options have narrowed so that the only mortgages currently written are conventional and Government fixed rate loans. Many of the now extinct loans (Sub Prime and Option ARMs) were exotic varieties which were appropriate for some situations, but were abused and rolled out to borrowers who didn’t fit the profile for benefitting from the loan, often didn’t understand what they were getting in to, and these abuses were a big cause of the mess we find ourselves in. One of the biggest casualties of the mortgage melt down has been Jumbo loans, but they might be making a comeback.

Jumbo loans are mortgages which are above the Fannie Mae lending limit of $417,000. This means that they are too large and not eligible to be bought by Fannie Mae or Freddie Mac (that is, the government) and anything that isn’t sold to the government has pretty much disappeared. Jumbo loans used to be priced at a premium to conventional loans, but the premium used to be small. Since Jumbo loans are made to those who are own or are buying larger homes, the borrowers usually have high incomes, high assets and high credit scores, which made them low risk borrowers. But the problem wasn’t tied to the borrower’s risk profile. Jumbo loans have been scarce because most of the Jumbo mortgages were bundled together with other Jumbo loans, securitized and sold in the mortgage after market. When the whole securitization market collapsed most of the Jumbo mortgages disappeared with it. There have been some jumbo options (usually ARMs) offered by lenders, often regional banks, which keep the loans for their own portfolio. The big lenders have had fixed rate Jumbo loans available, too, but at prices so high they were not a serious alternative.

It looks like this situation is starting to change. A few big wholesale lenders have dipped their toes into the Jumbo market, and we now have one lender who is pricing aggressively. Risk is still an issue and in order to qualify you will need to have great credit, verified income, strong equity and lots of reserves. In other words, they want loans that will perform even if the housing market gets worse. But if you are in a Jumbo loan and want to refinance, or about to buy a home in the jumbo category, you now have some options that weren’t available before. If you are in the market for an Illinois Jumbo loan, give me a call.

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