As overall mortgage activity slumps, the jumbo-mortgage business thriving. Mortgage applications were down in May compared to year-ago levels, but mortgage activity remains stable for jumbos—loans that are above $417,000 in most markets and more than $625,500 in high-priced areas.
The luxury housing market has been rebounding at a quicker pace than the lower-end market, and confidence is growing among high-income home buyers, says Guy Cecala, publisher of Inside Mortgage Finance. “Higher-end borrowers have recovered faster and stronger than lower-income Americans from the recession,” Cecala told The Wall Street Journal.
As such, lenders are reaching out to the high-end buyer more readily.
“There’s more competition, more affordable rates, and the most flexible underwriting,” Cecala says. “Arguably, this is one of the best times in history to be shopping for a jumbo mortgage.”
The average interest rate on a 30-year fixed-rate jumbo loan was 4.29 percent for the week ending June 13, according to HSH.com, a mortgage information provider.
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Home purchase mortgage applications for loans between $417,001 and $625,000 rose 2.5 percent in May compared to year-ago levels. On the other hand, loans for home purchases of $150,000 or less dropped 18.8 percent year-over-year, and loans between $300,001 and $417,000 dropped 19.4 percent, according to the Mortgage Bankers Association.
Jumbo loans accounted for 38 percent of Bank of America’s overall mortgage lending in the first quarter of this year – compared with 23 percent a year ago.
“Lenders want jumbo borrowers,” says Mathew Carson, vice president of First Capital Group, a San Francisco mortgage brokerage firm. “They see a jumbo mortgage as an entry point to sell them other financial services.”
Source: “Why Lenders Love Jumbo Mortgages,” The Wall Street Journal (June 22, 2014)