The Market Impact of Higher Jumbo Mortgage Rates
The New York Times reported a trend with potentially alarming repurcussions for the townhouse market (and some of the pricier condos coming to market) in Brooklyn: Upward pressure on interest rates for jumbo loans. The article leads with the example of one guy who was quoted 8 percent one day and then three days later,…
The New York Times reported a trend with potentially alarming repurcussions for the townhouse market (and some of the pricier condos coming to market) in Brooklyn: Upward pressure on interest rates for jumbo loans. The article leads with the example of one guy who was quoted 8 percent one day and then three days later, when he went back to lock in the rate, the number had leapt to 13 percent! This is atypical, to be sure, but the spread between regular mortgages and jumbo mortgages has expanded from about 25 basis points a few weeks ago to about 70 basis points now. (According to Bankrate, most lenders are quoting between 7 and 8 percent for zero-point 30-year jumbo loans.) What’s going on? Regardless of the creditworthiness of the borrower, it appears that the implosion of the subprime market has reduced the market’s appetite for even higher-credit mortgages on amounts above the $417,000 level that Fannie Mae and Freddie Mac are restricted to buying. We’ve got a couple of questions: 1) Are there any readers who’ve tried to get a jumbo loan in the past week or two? 2) If this persists for more than a week or two, what does it mean for the Brooklyn market?
In a Credit Crisis, Large Mortgages Grow Costly [NY Times]
I have been in the mortgage business for 15 years and while the rates have risen they are not going to rise as much as people think- for jumbos too. The yield curve is steepening – short term rates are dropping faster than long term rates are rising. Many lenders with access to capital will do very well with out relying on the secondary market. For example is you are a bank paying 4% on a money market ( which will drop as the fed drops) and you loan money at 6.5% you are making a great spread – 2.5%.That is the highest it has been in years.
There will be problems for the REITs (mtg banks without capital) b/c they can not last too long using their own funds to make loans until the secondary market returns to normalcy but the s an ls should be fine and be able to ride out the storm without charging high rates.
Also – inventory in NYC is going down faster than demand which would only keep prices stable- you should read today’s real section
of the NYT.
One could split their loan into a confirming, and carry a second trust for the balance – then the bulk of your loan is conforming, at a much better rate, and a small portion of the balance should be a smidge over 7, like 7.125 with a 30 year fixed on it. Pay down the second more aggressively if you can, but either way you’re sitting at a better than 6.875 rate.
Guess that flight to quality won’t be taking place as planned.
I am scheduled to close at the end of the month and need a $475,000 loan after a $200,000 down payment. The interest rates have zoomed up since we went to contract. Right now we will be lucky to get around 7% from our lender since we have not yet locked. I am worried that if we do not lock soon 7% will be a thing of the past. We are stuck since we have to close- I think our best hope is if we can scrounge up the other $58,000 to get a conforming loan at 6.25%.
I was quoted a rate of 6.25% yesterday – not too bad. Don’t expect the Fed to cut rates now or in Sept – they have to manage the perception that action can give to the int’l and domestic economy that things are really bad – and it will mainly only help bail out these large players. In fact their cutting rates in the past started all this mess. The impact of this recent market mahem is felt mainly by the rich and greedy – consumer confidence is still relatively strong – so no real need to cut rates at this time.
Anyone thinking the slowdown isn’t here should chew on this:
http://www.nypost.com/seven/08132007/news/regionalnews/a_alute_to_manhattan_co_op_bds__regionalnews_.htm
Basically co-op boards are ensuring that those who can still get mortgages have to pass a still higher hurdle.
Compared to last year there must be half the number of fully qualified buyers per co-op even IF confidence in the market has stayed the same.
That has already deflated prices. It just isn’t obvious yet because of the summer malaise. If you ask a broker about lack of listings, traffic and bids they just wave their arms around and talk about summer being slow. Bull. Wait for 1st october, my bet is that there is no take off. It’ll be like summer traffic, except with more listings == price drops.
I am astounded by the “it can’t happen here” attitude.
First, the argument was real estate never depreciates. Second came the argument, only areas where there was a lot ofspeculation (Las vegas, South Florida) would be hit by a market correction. Third, is the belief that only ‘subprime’ borrowers would be hurt.
Now it appears the correction is hitting the upper end of the market as well.
The market WILL come down, even in brooklyn and manhattan. Not because buyers will squeeze the sellers, but because people simply can’t afford to pay the crazy prices that have been the norm for several years.
Not to make life more difficult for mortgage brokers, but my mortgage banker at Wells Fargo told me the spread between the rate you are quoted by brokers on a jumbo loan and the rate that Wells Fargo gives you directly is what changed significantly last week. If you go through a broker, Wells rates out at around 8%, but directly through them it is still around 6.875%. He seemed to think it was because his bank likes to blame blaming brokers for lax document scrutiny that lead to bad loans, rather than their own underwriters.
The spread between conforming and non-conforming loans has widened because of the chaos in the CD0/capital markets. 13 pct is BS though. This roiling in the Capital Markets will be worked through as sub prime-CDO debt passes to stronger hands. Brooklyn should feel the effects of tighter jumbo market, but you can still borrow. The funny money and loosey goosey people are out of the market though.