Jumbo Loans May Start to Flow as New Loan Programs are Announced
Money is starting to flow, at least according to one bank this past week. In an effort to jump start their lending efforts, Bank of America announced earlier last week that mortgage money previously squeezed by the credit crisis will begin to flow once again as new programs aimed at higher purchase values are introduced.
Speaking in the status of jumbo mortgages, those mortgage amounts too large to be backed by the Federal Housing Administration, Fannie Mae or Freddie Mac, Bank of America’s Senior Vice President said, “Higher-cost areas throughout the country traditionally have depended on the ready availability of ‘jumbo’ mortgages to finance houses. Such neighborhoods are heavily concentrated in California, portions of Florida and the Northeast, including the Washington region. With the collapse last year of the private mortgage bond market on Wall Street, home buyers, builders and refinancers who relied on jumbo financing were left with few sources -- except with punitively high interest rates and huge down payments…” that is until now.
The new jumbo programs, available through the Bank of America’s retail network and its Countrywide Home Loans subsidiary, will be aimed at loans between $730,000 and $1.5 million, with fixed rates at 30-years and interest rates in the upper five percent ranges. Already, my local Bank of America called to inform me of several new jumbo loan products with 80% loan to value (LTV) up to $1.5 million and 70% LTV to loans up to $3 million.
In the past, jumbo type loans have been defined as a home mortgage whose principal amount will exceed the limits set by Fannie Mae and Freddie Mac. At the start of 2009, the upper limit of such loans was $625,000, up from a high of $417,000 at the beginning of 2008. At one point toward the end of 2008, Congress raised the upper limit in high-cost areas for Fannie Mae, Freddie Mac and the Federal Housing Administration to $729,750, where it will stay until at least the end of 2009, due to the recent economic stimulus package passed by Congress last month.
As part of this announcement, Bank of America also noted that with these programs it will become the largest lender in the jumbo loan arena, but others are getting the idea as well. ING, for example, is currently offering jumbo loans up to $2 million. Their programs are currently developed around a 5/1 or 7/1, which fixes the interest rate for the first five or seven years, then goes to an adjustable, which will be tied to the Libor index for the remainder of the loan term.
But do not expect the jumbo programs to come easy. Due to today’s tighter lending standards, Bank of America says it is going to take full loan documentation and at least six months of principal, interest, property tax and insurance payments in reserve, plus great credit and an appraisal to boot. Similar lending requirements for these types of loan products at other institutions are now the rule, and no longer the exception.
