Jumbo Mortgage Rates Plunge

Time to Refinance? Jumbo Mortgage Rates Plunge
Wall Street Journal
Saturday, July 10, 2010
By JESSICA SILVER–GREENBERG
Nearly two years after the credit crunch virtually froze mortgage markets, high–end borrowers are seeing some relief: Rates for "jumbo" mortgages on pricier homes are at their lowest since 2003.

Just a year ago, the average rate on a 30–year jumbo mortgage–a loan of more than $729,750 not backed by government–sponsored agencies Fannie Mae or Freddie Mac–was 6.86%, according to Greg McBride, a senior financial analyst at Bankrate.com. Now it is 5.48%–a rate that rivals those available during the height of the credit bonanza.

"In just the past couple of months, jumbo loans have really started to be competitively priced," says Keith Gumbinger of HSH Associates, a publisher of consumer–loan information.

The lower rates signal relief for homeowners looking to shed an onerous mortgage–and for the high–end housing market itself. More–affordable jumbo loans will likely whet appetites for new home purchases, helping to stabilize prices at the upper end of the market. For consumers, the lower rates will make home purchases more affordable and enable existing homeowners to trim their monthly bills by refinancing.

Applications Up
On Tuesday, Citigroup Inc.'s Citibank unit reported applications for jumbo mortgages at its retail branches were up 30% over the previous 60 days. Brad Dinsmore, who heads Citi's retail–banking business, called home loans a "top priority." Bank of America Corp., meanwhile, is now offering "competitive rates" on jumbo loans, starting in the 5% range, says Vijay Lala, product executive for Bank of America Home Loans. "We are very active in that marketplace, and we believe that jumbo loans will help lead the recovery in housing," he says.

More lenders likely will follow suit and plunge back into the market, says Guy Cecala, publisher of industry publication Inside Mortgage Finance. "It's a safe and profitable business to get into because jumbo loans are only going to borrowers with pristine credit," he says.

Competitive pricing has spurred an uptick in activity among borrowers around the country, say mortgage brokers. "In the last couple of months alone, I've seen almost a 50% rise in sales of homes that need jumbo mortgages," says Frederick Wohlfarth, president of Manhattan real–estate broker Wohlfarth & Associates.

After the financial crisis struck, the market for jumbo loans ground to a halt. Instead of selling loans into the secondary market, lenders had to hold them on their balance sheets. With housing prices on a dizzying dive, most lenders weren't willing to take the risk of keeping potentially risky new loans on their books, which crippled the market for higher–end homes. Investors headed for the safety of government–backed home loans and steered clear of the private–lender variety. "Now banks have more capital and are beginning to lend," HSH's Mr. Gumbinger says. "My ultimate question is: How long will these rates really last?"

Big Savings for Borrowers
A single percentage drop spells big savings for borrowers–and that is good news for the housing market. For example, a homeowner with a 30–year fixed–rate $800,000 mortgage at 6.86% pays $5,247 a month. If he were to refinance at 5%, his monthly payments would be reduced by $952. While financial experts advise caution, prudent borrowers also can use lower rates to refinance existing mortgages and cash out some of their equity, while still ending up with an affordable mortgage.

David Sandak, a periodontist in Weston, Conn., was saddled with an expensive adjustable–rate mortgage on his $1.3 million colonial–style home, where he lives with his two daughters after his 2008 divorce. Two months ago, with the help of his real–estate lender Luxury Mortgage Corp. in Stamford, Conn., he was able to refinance to a 10–year fixed–rate mortgage at 4.875%. He cashed out roughly $90,000, which he is using to renovate his kitchen. "I was incredibly impressed with what I was able to get," Dr. Sandak says. "I thought I was in a desperate strait, and it turns out I wasn't."

Along with favorable rates, well–heeled borrowers are finding it easier to qualify for new jumbo loans and refinance existing loans at attractive terms. Underwriting standards are still strict, with most major lenders requiring a credit score in the 700s and down payments of up to 40%, but those with good credit can find good deals.

Fernando Quinde, of Laguna Beach, Calif., is trading in his 30–year interest–only mortgage for a cheaper one. Four years ago, the 50–year old real–estate developer took out the mortgage, which had a fixed rate for 10 years, to buy his dream home, which has 180–degree views of the Pacific. The $1.5 million loan, which was issued by Countrywide Financial, required him to pay $7,500 a month–causing him more distress than he expected. With the help of his real–estate broker, Mr. Quinde is now in the process of refinancing into a new 30–year loan with a fixed rate of 4.875% for seven years. "I am working to save some money, and this enables me to do that," he says. "I am thrilled."