NATION'S HOUSING:: Super-size loans: Relief du jour

http://www.calendarlive.com/tv/radio/cl-re-harney30mar30,0,3265206.story

NATION'S HOUSING
Super-size loans: Relief du jour
These new, higher- limit jumbos may help financially stressed owners find affordable fixed-rate refinancing.
By Kenneth R. Harney
Washington Post Writers Group

March 30, 2008

WASHINGTON -- Your IRS rebate check from the economic stimulus legislation won't be arriving until sometime in May, but the stimulus plan's new super-sized jumbo or non-conforming loans for buyers in high-cost housing markets have just begun hitting the marketplace.

Depending on the location of the property you want to buy or refinance, you can now get an FHA-insured mortgage for as much as $729,750 with a 3% down payment. You can also apply for loans designated for funding by Fannie Mae and Freddie Mac up to that amount -- or 125% of your area's median home price -- but with down payments of at least 10%.

The new jumbos are intended to break up a logjam in the capital markets. Starting in August, global investors began bailing out of American mortgage bonds as fears about losses and write-downs spread from the subprime sector into other home loan categories. Jumbo loans traditionally were viewed as slightly higher-risk than the "conforming" loans up to $417,000 that were bought and securitized by congressionally chartered Fannie Mae and Freddie Mac.

But as the capital markets seized up, money for jumbos virtually disappeared. Interest rates soared to 9% and 10% in some cases, causing problems for buyers and refinancers in California, New England, the mid-Atlantic states and parts of Florida, where high home prices require hefty amounts of mortgage money.

To free up the flow of capital in these areas and to help financially stressed owners find affordable fixed-rate refinancing, the stimulus legislation authorized new jumbo-loan programs through Fannie Mae, Freddie Mac and the Federal Housing Administration through Dec. 31.

Absent congressional action, the limits will drop back to $417,000 for Fannie and Freddie, and to $362,790 for FHA, beginning New Year's Day. In the meantime, there should be plenty of jumbo mortgage money available for anyone who can afford it.

Just don't expect eligibility standards to be as generous as you can find in the under-$417,000 segment of the market. For example, in the guidelines for what Fannie Mae calls its new "jumbo conforming" program, the company will, beginning April 1, purchase fixed-rate mortgages up to $729,750, but only with the following conditions:

* Minimum down payment of 10%.

* Minimum FICO credit score of 700 for any loan with less than a 20% down payment. "Nontraditional" credit histories as alternatives to FICOs are not permitted as in other programs.

* Minimum 40% down payment and 660 FICO for second homes and investor properties.

* No balloon or negative-amortization payment terms allowed.

* Household debt-to-income ratios cannot exceed 45%.

Freddie Mac announced similar standards but wants minimum 700 FICO scores on any loan with less than a 25% down payment.

Don't expect interest rates on the new super-sized conforming jumbos to be competitive with smaller mortgages, either. Besides higher base rates, there are add-on charges in "declining" markets that can push final note rates beyond 7 1/2 % in some cases.

Many areas tagged as declining are in the former housing boom markets in California and the Eastern seaboard where jumbos are most common and most needed.

In Naples, Fla., for example, the first batch of conforming jumbos available in late March came with base rates of 6 7/8 %, according to mortgage brokers, but with the declining market and other price adjustments, the final rate to some borrowers came to 7 7/8 %.

William Dukes, senior loan officer for Summit Home Mortgage Inc. in Naples, said the rates on the new jumbos "are surprisingly high" compared with loans below $417,000.

Traditionally the spread between conventional loan rates and jumbos was about half of a percentage point.

"I don't know what [Congress] is really accomplishing here," he said.

Paul Skeens, principal broker at Carteret Mortgage Corp. in Waldorf, Md., disagreed, arguing that some pricing on the new jumbos is attractive, especially for FHA loans with down-payment requirements far below the 10% mandated by Fannie and Freddie.

"I don't think the stimulus was intended . . . to buy the market with low rates," he said, "it was intended to stabilize the market" by ensuring adequate funding for housing in high-cost areas.

You can buy a $700,000 house with 3% down with a 30-year-fixed rate of 6 1/2 % right now in the Washington, D.C., area, Skeens said.

"And that is really an amazing deal," he said.



Comments for Kenneth Harney can be sent to kenharney@earthlink.net.