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Apr-20-2008Condo loans could be tougher to get(topic overview)
CONTENTS:
- The agreement is with Wells Fargo & Co., J.P. Morgan Chase & Co. and Citigroup Inc., Freddie officials said. (More...)
- "I want to thank Wells Fargo, Chase, CitiMortgage and WaMu for working with us and enabling us, in a new way, to fulfill our public mission to America's lenders and borrowers," Syron added. (More...)
- "Even if you had an 800 FICO score and 50 percent equity," said Lipes, "you still might not be able to get a condo loan" under certain circumstances. (More...)
- Mortgage companies and bond-rating firms basically stand accused of lying to investors over the last several years about the quality of packages of mortgages called mortgage-backed securities. (More...)
- Signed legislation to increase protections for Californians who own or plan to purchase homes and to expand affordable housing opportunities. (More...)
- A recent Freddie Mac advisory stated, "Our previously announced rate increases do not fully offset the increased risks of on-going changes in market conditions. (More...)
- For months, mortgage lenders have been backing away from borrowers with spotty credit, all but closing down the so-called subprime mortgage market. (More...)
- I f you own or plan to buy a condominium, an ominous new phase of the mortgage credit squeeze could be looming on your horizon. (More...)
- Freddie Mac shares were recently trading up 34 cents, or 1.22%, at $28.12. (More...)
- Fannie and Freddie sock your lender (and, therefore, you) with a fee of one-half of 1 percent. (More...)
- I financed $500K of a $629K purchase last summer with a 6.125% 10/1 ARM. I'll be interested to see if I can get into a fixed-rate for under that rate without paying points or closing. (More...)
- In February, the Governor met with the U.S. Department of Housing and Urban Development Secretary in Washington D.C. to reiterate the importance of a permanent loan limit increase. (More...)
- Richard Syron, chief executive of the McLean, Va. -based-company said the move "shows how we can bring new liquidity to markets other investors have all but abandoned and make full use of the new tools Congress gave us to help restore stability during the current housing crisis." (More...)
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The agreement is with Wells Fargo & Co., J.P. Morgan Chase & Co. and Citigroup Inc., Freddie officials said. For the past nine months or so, interest rates on jumbo loans -- those bigger than the normal $417,000 limit on mortgages that can be sold to government-sponsored investors Freddie Mac and Fannie Mae -- have been much higher than those on smaller ones. That's because other loan investors, spooked by surging defaults and dropping home prices, are reluctant to buy loans that aren't backed by Fannie, Freddie or the Federal Housing Administration. [1] Sacramento, California - Governor Arnold Schwarzenegger today issued the following statement after Fannie Mae, Freddie Mac, Wells Fargo Bank, Washington Mutual, CitiMortgage and JP Morgan Chase announced plans to provide billions of dollars of conforming jumbo mortgages in high cost locations. Their actions, which allow for loans as high as $729,750, stem from the new higher federal loan limits requested by Governor Schwarzenegger and included in the federal economic stimulus package signed by the President earlier this year.[2] SAN FRANCISCO, Apr. 17, 2008 (Thomson Financial delivered by Newstex) -- Freddie Mac (NYSE:FRE) said Thursday has agreed to buy $10 billion to $15 billion of new conforming jumbo mortgages with original loan amounts up to $729,750 from Wells Fargo Home Mortgage, JPMorgan's (NYSE:JPM PRH) (NYSE:JPM PRX) (NYSE:JPM PRK) (NYSE:JPM PRJ) (NYSE:JPT) (NYSE:JPM) Chase, Citigroup's CitiMortgage, and Washington Mutual. Freddie Mac said its purchase of conforming jumbo mortgages is restricted to 224 high cost markets where median home prices exceed Freddie Mac's $417,000 loan limit.[3] Temporary Stimulus Act Authority May Add $10-$15 Billion in Mortgage Sales This Year MCLEAN, Va., April 17 /PRNewswire-FirstCall/ -- Freddie Mac has agreed to purchase billions of dollars of new conforming jumbo mortgages with original loan amounts up to $729,750 from Wells Fargo Home Mortgage, Chase, CitiMortgage and WaMu.[4]
The home funding company said it expects to finance "between $10 (billion) and $15 billion" in new jumbo mortgages in 2008. Under an economic stimulus package passed earlier this year, Freddie Mac and its larger mortgage-finance cousin Fannie Mae (FNM.N: Quote, Profile, Research ) may finance loans valued up to $729,750 through the end of the year. The move is meant to increase liquidity in the nation's housing finance markets though Fannie Mae and Freddie Mac had said they would need some time to set up a process for packaging the larger loans.[5] The rate is around 6.75 percent for loans between $417,000 and $523,750. "They defeated the purpose of helping the average consumer trapped in an adjustable-rate mortgage" who wants to refinance, said Thomas Marroni, president of New Boston Mortgage Corp. Jumbo loan rates - those now above $523,750 - are higher still at around 7.25 percent. Freddie Mac and Fannie Mae can purchase these larger loans that are originated between July 1, 2007, and the end of this year. That gives lenders the option of either selling existing loans in their portfolios or making new ones. Freddie Mac's spokesman, Brad German, said the bank agreements will include both loans in their portfolios and new loans they originate.[6] Until February, Freddie Mac and Fannie Mae (nyse: FNM - news - people ), two companies that began life as government agencies but that now operate in the private-sector, were forbidden to acquire mortgages of more than $417,000. The companies buy home loans that conform to their size limits and other rules and package them into mortgage-backed securities that are sold to investors. Other kinds of loans were also packaged into securities -- with sometimes disastrous consequences -- but those that do not conform to the Fannie and Freddie rules are considered riskier investments. In many American markets, $417,000 is barely enough to buy a parking space, let alone living quarters, so when Congress and President George Bush decided to stimulate the American economy in February -- seeking to forestall an impending recession rooted at least in part in problems in the mortgage market -- they raised the limit to $729,000 for the rest of this year.[7]
In February, the Office of Federal Housing Enterprise Oversight, the federal agency that oversees Freddie Mac and Fannie Mae lifted limits on the amounts the government-sponsored enterprises could invest in home mortgages. The government had placed restrictions on the companies after a series of accounting scandals at both of them. Freddie Mac said its purchase of conforming jumbo mortgages is restricted to 224 high-cost markets where median home prices exceed its earlier $417,000 loan limit.[7] District-based Fannie Mae said it has offered similar purchase programs to "lenders large and small" since April 1. Freddie Mac's new programs will enable lenders to offer lower interest rates by allowing them to "hedge their conforming jumbo pipelines," or loans bigger than $417,000 that they're in the process of making, Ryan said.[8] The purpose was to reduce interest rates on loans in that category. At the time, interest rates on jumbo mortgages were more than 2 percentage points higher than those eligible for purchase by Freddie Mac and Fannie Mae.[6]
The pricing commitments will be based on benchmarks in the pricing of mortgage-backed securities. Freddie officials said they are in talks to extend similar terms to other big lenders. Based on the current pricing plans, interest rates on conforming jumbo loans are likely to be around 0.50 to 0.75 percentage point above those on loans of $417,000 and below, said Bob Ryan, vice president of mortgage-credit pricing at Freddie. The conforming jumbo rates should be around 0.50 point below those on mortgages that exceed the new caps, he said.[1]
The nation's two largest mortgage investors yesterday stepped up their efforts to revive housing markets in high-cost cities, with one promising to provide up to $15 billion to lower interest rates on jumbo home loans. The move may rescue a program, passed by Congress in February, that has been widely viewed by lenders and mortgage brokers as off to a poor start because it did not lower rates on jumbo loans enough to make them attractive to borrowers. Some lenders and loan brokers said they had not made a single loan under the program.[6]
As of yet, Fannie Mae has not adopted the 720 score requirements. Do not get overly excited and assume though that this is a solution to simply find a lender that offers Fannie Mae-based products. Lenders typically have the ability to offer both Fannie Mae and Freddie Mac; yet all lenders I have seen so far have internally adopted the higher requirements. Is this for more of a profit margin? To cover more of their risk? Or could it simply be to ensure they would be able to have the loan backed by either agency? Unfortunately, only the lenders know. If a borrower has few options with fixed-rate conventional financing because of the agencies' 2007 losses, what choice is there but to pay higher interest rates or fees? If the initial purpose of the government guarantees to the agencies were so they could offer more affordable home loans to the average American; how are higher fees making it more affordable? The average American does not have a 720 credit score.[9] If that is you, that means you are subject to risk-based pricing in the form of fees that Freddie Mac and Fannie Mae charge to lenders. The lenders then pass these costs along to consumers, either as fees or higher rates or a combination. Loan officers and brokers can't quote a rate accurately unless they know details: your credit score; whether you're buying or refinancing; the loan-to-value ratio, or LTV; the ratio of your income to your total debt payments; whether you'll live in it or rent it out. "I really think this is a topic that people should be aware of when shopping for a loan," says Jim Sahnger, mortgage consultant for Palm Beach Financial Network in Stuart, Fla. "You cannot be a rate shopper and simply ask, 'What is your rate?' without setting yourself up for failure and not know and disclose what your credit scores are. Without more information, prospective borrowers could be setting themselves up to appear they are being bait-and-switched from being quoted rates for 'prime' borrowers versus those with scores below 740 and LTVs above 60 percent."[10]
In January 2007, less than 0.6 percent of prime jumbo loans were delinquent by 60 days or more. That means the percentage of troubled jumbo loans has more than doubled in 12 months. Lenders feel safer making the smaller conforming loans because they can sell them to government-sponsored entities such as the Federal National Mortgage Association, or Fannie Mae, and the Federal Home Loan Mortgage Corp., Freddie Mac.[11] Citigroup, Wells Fargo and JPMorgan were also not available immediately for comment. Till now, lenders have hesitated to offer loans between $417,000 -- the normal limit on mortgages that can be sold to government-sponsored enterprises -- and the new $729,750 limit, passed as part of the economic stimulus package in February, since they were unsure about how much Freddie Mac and Fannie Mae would pay for them, according to the Journal.[12] The economic stimulus package signed by President Bush in February temporarily raised the maximum size of so-called conforming mortgages that government-sponsored mortgage companies Fannie Mae and Freddie Mac can purchase and market as securities. The limit was raised from $417,000 to as high as $729,750 in expensive parts of the country such as New York and California.[13]
The "Conforming Jumbo" loans in question fall in between $417,000 and $729,750. As a result of the ongoing housing crisis, the U.S. congress raised the limit on loans that can be sold to Freddie Mac or Fannie Mae to $729,750 from their limit of $417,000.[14] Today's announcement marks the first large-scale effort to jump-start the stalled jumbo mortgage market under the Economic Stimulus Act, which temporarily raised Freddie Mac's conforming loan limit from $417,000 to as much as $729,750 through December 31, 2008.[4] The mortgage finance company said it taking the action under the Economic Stimulus Act, which temporarily raised Freddie Mac's conforming loan limit to $729,750 from from $417,000 through Dec. 31, 2008.[3] The McLean, Va., company said the financing is part of the Economic Stimulus Act, which temporarily raised Freddie Mac's conforming loan limit to $729,750 from $417,000. The purchases are limited to 224 high-cost markets where median home prices exceed its original loan limit, the company said.[15]
The loans can be as big as $729,750 in some areas. "These new conforming jumbo mortgages will reduce homeownership costs for families in high-cost areas," David B. Lowman, the head of J.P. Morgan's mortgage unit, said in a statement from Freddie Mac yesterday. Freddie Mac has already purchased some pools of jumbo loans, Ryan said, and it expects to buy or guarantee $10 billion to $15 billion this year. Freddie Mac's new programs are "much more consistent" with how it normally buys smaller loans than with how it's been buying the big loans so far, he said.[8] Mortgage finance company Freddie Mac said Thursday it would buy up to $15 billion in home loans for higher-priced properties, using new flexibility granted by Congress earlier this year.[13] In "The Sims," which can be played online or not, players create homes and businesses for and guide the day-to-day lives of "Sims" characters. It has been published in 60 countries and 22 languages. Its creator, Will Wright, is one of the video game industry's best regarded brains, though he's no longer involved with the title. FREDDIE MAC BUYING $15B IN HOME LOANS: Mortgage finance company Freddie Mac said Thursday it would buy up to $15 billion in home loans for higher-priced properties, using flexibility granted by Congress earlier this year.[16]
"I want to thank Wells Fargo, Chase, CitiMortgage and WaMu for working with us and enabling us, in a new way, to fulfill our public mission to America's lenders and borrowers," Syron added. "CitiMortgage applauds Freddie Mac for agreeing to buy loans for these qualifying borrowers, and we are looking forward to working with Freddie and borrowers to improve housing affordability in these higher cost markets," said Bill Beckmann, CitiMortgage president. "These new conforming jumbo mortgages will reduce homeownership costs for families in high-cost areas," said Dave Lowman, CEO of Chase Home Lending. [4] Government-sponsored enterprise (GSE ) Freddie Mac has signed a pact with CitiMortgage, Wells Fargo Home Mortgage, Chase, and Washington Mutual that will allow the GSE to lesson pressures in the jumbo mortgage market by acquiring billions of conforming jumbo loans from the four lenders.[17] Freddie Mac said it expects to buy up to $15 billion of so-called jumbo conforming loans from major lenders, including Wells Fargo amp; Co., Chase, Citi, and Washington Mutual.[6]
By working with Wells Fargo, Chase, CitiMortgage, WaMu and other national lenders, Freddie Mac expects to finance between $10 and $15 billion in new jumbo mortgages in 2008.[4] Borrowers can use Freddie Mac conforming jumbo mortgages to finance up to 90% of a property's value. Because Freddie Mac is buying the new conforming jumbo mortgages for its portfolio, Wells Fargo, Chase, CitiMortgage and WaMu will have instant liquidity and can offer a stable jumbo market rate to qualified borrowers.[4]
"Purchasing conforming jumbo mortgages for our portfolio shows how we can bring new liquidity to markets other investors have all but abandoned and make full use of the new tools Congress gave us to help restore stability during the current housing crisis," said Freddie Mac's chairman and chief executive officer Richard Syron. "We initially expect conforming jumbo mortgages to have rates that are as much as half a percentage point below the jumbo market rate in many of these high cost markets." "These new conforming jumbo mortgages will reduce homeownership costs for families in high-cost areas," said Dave Lowman, chief executive officer of Chase Home Lending.[17] Freddie Mac, the second-largest U.S. financier and guarantor of home mortgages, said it would buy the mortgages of up to nearly $730,000 from Wells Fargo & Co., JPMorgan Chase & Co., and Washington Mutual Inc. Richard Syron, chief executive of the McLean, Va. -based-company said the move "shows how we can bring new liquidity to markets other investors have all but abandoned and make full use of the new tools Congress gave us to help restore stability during the current housing crisis."[16] Freddie Mac (nyse: FRE - news - people ) said it would purchase home loans of up to $729,000 from lenders including Wells Fargo, JPMorgan Chase, Citigroup, and Washington Mutual.[7] Freddie Mac said in a press release on Thursday that it will purchase conforming jumbo loans from Wells Fargo & Co, JPMorgan Chase & Co, Citigroup Inc and Washington Mutual WM.N.[18]
"We value our relationship with Freddie Mac which enables us to collectively do great things for consumers," said Mike Heid, co-president of Wells Fargo Home Mortgage. "While Wells Fargo has offered jumbo loans directly to consumers throughout the current market correction, this important agreement provides a reliable investor for loans in high-cost areas which, in turn, further broadens our ability to serve these customers."[4]
Freddie Mac is a stockholder-owned corporation authorized to make loans and loan guarantees. It buys mortgages on the secondary market, pools them, and sells them as mortgage-backed securities to investors on the open market. This secondary mortgage market helps to replenish the supply of lendable money for mortgages and ensures that money continues to be available for new home purchases.[19] Freddie has dubbed loans between the old cap and the new as "conforming jumbo" mortgages. Brad German, a spokesperson for Freddie Mac told Forbes.com that "the forward commitments to buy these loans will provide stability to the rates that lenders can offer and will provide liquidity to credit-starved markets." German said that because banks know that Freddie will buy these larger loans, confidence will be restored in a currently volatile market environment. German added, "There is risk, however we are pricing for this consideration."[7] On the larger loans Freddie Mac will buy, consumers will probably pay interest rates 0.50 percentage point to 0.75 percentage point higher than on smaller mortgages, Ryan said.[8]
Though, bankers and mortgage brokers said that the rates for loans between $417,000 and $523,750 remain nearly a full percentage point higher than traditional conventional loan rates, too high to provide much advantage to borrowers. Brokers and lenders said they had been under the impression the rates on the larger loans would be as low as existing rates on loans less than $417,000 - currently around 5.875 percent for a 30-year mortgage.[6]
Loans above $417,000 can generally be sold only to private investors, at least for mortgages made in Texas. Congress is temporarily allowing government-sponsored entities to buy mortgages of up to $729,750 in pricey markets such as Los Angeles and New York (and even larger loans in a few other markets). Those rules do not apply to Texas, where homes cost less.[11] In February, Congress passed legislation raising the ceiling on loans that can be purchased by Fannie or Freddie or insured by the FHA to as much as $729,750 in the highest-cost areas. The expanded limits are due to expire at the end of this year, though they could be extended by Congress. Some lenders have been reluctant to offer terms on loans between $417,000 and the new $729,750 limit -- a category known as "conforming jumbo" -- because of uncertainty over how much Fannie and Freddie will pay for them.[1] Freddie Mac will be able buy mortgages on the secondary market that are valued as much as $729,750, thanks to legislation Congress passed allowing Freddie and Fannie Mae to buy jumbo mortgages in 224 high-cost markets. This move should allow buyers in those markets to be able to secure cheaper rates, since Freddie will finance up to 90% of property values, The Wall Street Journal, hopefully improving sales in the market.[20] Government backed mortgage company Freddie Mac (FRE) will finance jumbo mortgages, or mortgages that are above conventional loan limits of $417,000, to help alleviate some of the strain in the high-priced housing market due to liquidity problems, The Wall Street Journal reported Thursday.[20] The jumbo mortgages purchased by the housing finance giant will be full documentation loans, that is, not Alt-A mortgages that lack verification of income and assets, said Brad German, a spokesman at Freddie Mac.[15]
Freddie Mac plans to finance $10 billion to $15 billion in jumbo mortgages from big lenders in an effort to jump start the frozen higher-priced housing market.[21] Freddie Mac says the pact includes jumbo mortgages valued as high as $729,750. Freddie Mac expects to finance approximately $10 to $15 billion in new jumbo mortgages this year alone.[17] Freddie Mac (FRE) agreed to purchase $10 billion to $15 billion of new conforming jumbo mortgages in 2008 from several financial companies.[15]
"Since April 1, we have been making jumbo-conforming whole loan pricing available for lenders large and small," Fannie Mae spokesman Brian Faith said. Mortgages that may be financed by Fannie Mae and Freddie Mac are known as "conforming loans" while "jumbo loans" are those that are unavailable for purchase by the two government-sponsored enterprises.[5] Fannie Mae spokeswoman Marilyn Kornfeld said the new procedures are designed to "protect borrowers and manage increased credit risk in the market." Freddie Mac spokesman Brad German acknowledged that the changes would make condo unit loans "more labor and paper intensive for the lender," but said weak sales, growing numbers of financially troubled projects, and declining property values made them necessary. Jeff Lipes, president of Connecticut-based Family Choice Mortgage Corp., said the Fannie Mae changes combined with other retrenchments battering the condo market mean that when potential applicants inquire about getting a loan on a condo unit, "we really can't give them a definite answer" because it takes research to determine whether their building qualifies.[22] Freddie Mac has issued similar new guidelines. Under Fannie Mae's changes, most of the due-diligence research on condominium projects' key characteristics - their legal documentation, the adequacy of condo association operating budgets, percentage of unit owners who are late on association-fee payments, percentage of space allocated to commercial use, and percentage of units owned by investors - must now be performed upfront by loan officers. Not only is this time-consuming and costly, but under the new procedures, Fannie Mae expects the lender to warrant the accuracy of its research. Some condo project legal documents run into the hundreds of pages of text, yet lenders are supposed to take legal and financial responsibility for their accuracy. "It's ridiculous," said Phil Sutcliffe, principal of Project Support Services of Lansdale, Pa, who helps put together condominium project financings for developers. Not only does this shift huge paperwork and time burdens on lenders and brokers - who may not have staff resources to handle the extra work - but also forces them to make "absolute judgments on things that are not absolute."[22] As a result of underwriting changes by giant investors Fannie Mae and Freddie Mac, plus severe new restrictions by private mortgage insurers, getting a loan on a condo unit - or even refinancing one you already own - could prove tougher than you imagined.[22]
VA loans require zero money down, highly competitive rates and relaxed credit guidelines when compared to conventional mortgages that follow Fannie Mae and Freddie Mac standards. Generally speaking, those that qualify for a VA mortgage are those honorably discharged from the Armed Forces Active Duty, having served 180 days, National Guard and Selected Reserves, and spouses of service men or women who died in service or from a service-related injury.[23] Mortgage financing giants Fannie Mae and Freddie Mac have been adding fees that make anything but the most plain-vanilla home loan more expensive.[10]
Freddie Mac's deals cover the bigger loans that it and Fannie Mae are temporarily permitted to finance under an economic stimulus package passed by Congress in February.[8] In February, Congress increased the size of mortgages that Freddie Mac and Fannie Mae are permitted to purchase from $417,000 to $523,750 in the Boston region - and higher in more expensive markets.[6] Freddie Mac's (NYSE: FRE) purchase of the larger conforming mortgages is a move many prospective home buyers have been waiting for since Congress raised the conforming mortgage limits from $417,000 in the continental United States to as much as $729,750 in the most expensive markets.[24] Congress changed the rules and allowed government-sponsored enterprises to buy mortgages worth up to $729,750 in 224 high-cost markets ' areas where the home price was above that level. Freddie Mac's move will now allow home buyers in these areas to get cheaper rates in the current credit crisis.[19]
Freddie Mac, the second-largest U.S. financier and guarantor of home mortgages, said it would buy the mortgages of up to nearly $730,000 from Wells Fargo & Co., JPMorgan Chase & Co., and Washington Mutual Inc.[13] I commend Fannie Mae, Freddie Mac, Wells Fargo, Washington Mutual, CitiMortgage and JP Morgan Chase for giving Californians living in high-cost markets more affordable mortgage choices."[25]
Between Fannie Mae and Freddie Mac, one could argue that a monopoly to borrowers may be under way. It appears as though construction season is not only under way around town, patching of the mortgage potholes is needed as well.[9]
Fannie Mae and Freddie Mac have controlled as much as half the country's mortgage market. Both are privately owned corporations, with an implicit guarantee that if they become insolvent, the U.S. government is likely to step in.[9]
The government is particularly worried about the people who need large loans. Its proxies, Fannie Mae and Freddie Mac, have announced they will start buying larger loans.[26] A Fannie Mae spokesman had no immediate comment on whether that company planned similar arrangements. HSH Associates, a financial publisher in Pompton Plains, N.J., said its surveys of lenders last week showed an average rate of about 5.9% on loans of $417,000 and below that can be sold to Fannie and Freddie, compared with an average of about 7.2% on loans too large for them to buy.[1] Yesterday, Fannie Mae said it had begun providing price quotes to lenders and said it required rates on jumbo conforming loans to be about four-10ths of a percentage point higher than for traditional conforming loans.[6] The yield that Fannie Mae requires on conforming jumbo mortgages is 0.39 percentage points higher than on comparable smaller loans, said spokesman Brian Faith.[8]
Currently, the yield Fannie Mae requires for fixed-rate, jumbo- conforming loans is just 39 basis points higher than the yield for comparable fixed-rate conforming loans. For jumbo-conforming whole loans, lenders can lock in pricing for up to 90 days, and commitments are available for both fixed-rate and adjustable-rate mortgages.[27]
Fannie Mae, a dominant financing source for condominium projects, has rolled out new procedures that some lenders and mortgage brokers say could tighten up the availability of loans to condo purchasers in the coming months.[22]
The Federal Home Loan Mortgage Corporation (NYSE: FRE) is going to buy $10 billion to $15 billion in jumbo mortgages from big lenders in order to lead housing market out of slump.[19] That means doctors, lawyers, business owners and corporate execs looking for jumbo mortgages those more than $417,000 are apt to pay significantly higher interest rates than people with similar credit scores in line for smaller loans.[11] What's the matter with jumbo loans? Kimberly Blanton writes in the morning Globe about the latest attempt to reduce interest rates on mortgage loans larger than $417,000.[26] Rising interest rates make a difference on "jumbo" mortgages, or loans of more than $417,000.[11]
That math made Dr. Clayton Roberts think twice about taking out a 30-year fixed-rate loan when refinancing his Preston Hollow home recently, even though that was the only kind of mortgage he had used in 15 years of home ownership. Dr. Roberts, 48, a Dallas anesthesiologist, wanted to combine two home loans to cut his monthly payment. He had taken out a loan last year to build a pool and pay for a landscaping project. With the high interest rates on fixed-rate jumbos, "it just doesn't make sense," he said. The doctor ventured into unfamiliar territory, opting for a jumbo loan on which he pays only interest for five years, at a rate of about 6 percent. After that, he will have to pay off the outstanding principal and interest over 25 years, at an interest rate that will be determined later. Dr. Roberts knows such adjustable-rate mortgages have gotten many borrowers in trouble. By reducing his monthly payments during the next five years, he thinks he can apply the savings to reduce the loan's principal by a greater amount. "I'm going for the ARM to pay down the principal balance," he explained.[11] If jumbo loans had drifted down to 6 percent, a person taking out a $500,000 fixed-rate mortgage for 30 years would pay just under $3,000 a month in principal and interest, or nearly $1.08 million over the life of the loan.[11]
Freddie Mac was earlier restricted from buying jumbo loans ' mortgages above $417,000 nationally.[19] To qualify for the best rate, Freddie Mac requires borrowers to have a 720 credit score, compared with a 680 score for loans $417,000 and under.[6]
None of the banks were able to provide rates for the jumbo conforming loans. Tom Kelly, a spokesman for Chase, said the Freddie Mac agreement "is going to make more money available in high-cost markets and the rates are obviously going to be less" than those for loans above the new upper limit.[6] NEW YORK - Freddie Mac has agreed to make 90-day commitments to several large banks on the pricing of "conforming jumbo" loans, according to a report.[14]
Fannie and Freddie are imposing numerous restrictions on conforming jumbo loans. For instance, Freddie won't buy such loans in cases where the borrower's mortgage debt exceeds 90% of the home's appraised value, or 85% in areas where house prices are falling. Freddie also says borrowers must fully document their income and assets.[1] Home funding company Freddie Mac has said that it will buy jumbo mortgages in areas with high real estate prices from four of the largest U.S. mortgage lenders.[18] WASHINGTON (Reuters) - Freddie Mac (FRE.N: Quote, Profile, Research ) said on Thursday that it will buy jumbo mortgages in areas with high real estate prices from four of the largest U.S. mortgage lenders.[5]
While specific product availability may vary by lender, Freddie Mac has said it will buy 15-, 20-, 30- and 40-year fixed-rate, fully amortizing conforming jumbo mortgages; 30-year fixed-rate mortgages with 10-year interest-only periods; fully amortizing 5/1 adjustable-rate mortgages (ARMs) and 5/1 ARMs with 10-year interest-only periods.[4]
Freddie Mac is lending a jumbo hand to a group of major U.S. banks, offering to buy as much as $15 billion in mortgages that used to be too big for its program.[7] Freddie Mac said it will buy mortgages up to $729,750 in 224 expensive housing markets, which would include the Los Angeles area, which is expected to increase the availability of the large mortgages and reduce their costs.[24]
The move, anticipated since Congress changed the rules allowing government-sponsored enterprises Freddie and Fannie Mae to buy mortgages worth up to $729,750 in 224 high-cost markets, should allow home buyers in.[21] The cap on the amount that Freddie Mac and Fannie Mae (FNM) can lend was recently lifted to a new ceiling reaching $729,750.[28] Credit rating agency Standard & Poor's published a report saying that Fannie Mae and Freddie Mac pose a great risk to America's triple-A Treasury bond rating than Wall Street's brokerages houses do as a result of the subprime crisis. The government would not be legally required to support the companies in the event of default, but both began as federal agencies and it seems likely that the United States would step in to help them in an emergency. Reuters contributed to this article.[7]
NEW YORK (Reuters) - Freddie Mac (FRE.N: Quote, Profile, Research ) is set to unveil a pact with three major lenders on Thursday as it seeks to make more funds available for big home loans, the Wall Street Journal said.[12] Freddie Mac is expected to announce Thursday an agreement with three major mortgage lenders aimed at making more funds available for large home loans.[1]
The government-sponsored home loan lender will offer the deal to Wells Fargo & Co., J.P. Morgan Chase & Co. and Citigroup Inc., Freddie officials said according to the Wall Street Journal.[14]
The Journal added that Freddie Mac has agreed to 90-day commitments with the three private lenders on the amount it will shell out for the loans to deal with the issue of the caps, due to the fact that there is no guideline for how much Freddie will pay for the additional capital.[28] Freddie Mac has consented to 90-day commitments to the three lenders on how much it will pay for the loans to deal with that issue, the report said.[12]
If you don't want to pay it at closing, your lender likely will waive the fee and raise the rate by one-eighth of a percent. These charges, called "loan level pricing adjustments" by Fannie and "postsettlement delivery fees" by Freddie, can add up.[10] A year ago, a 30-year fixed-rate jumbo came with an average rate of about 7 percent in Dallas, according to Bankrate.com. That was only slightly higher than the 6.75 percent someone might pay on a smaller mortgage with otherwise comparable terms, known in the industry as "conforming" loans.[11] Qualified borrowers can now apply for an array of fixed-rate or adjustable rate conforming jumbo mortgages that will be less expensive than non-conforming jumbo loans in high cost markets.[4] Qualified borrowers can also obtain cash-out refinancings under Freddie's program that provides a maximum cash-out of $100,000. "We initially expect conforming jumbo mortgages to have rates that are as much as half a percentage point below the jumbo market rate in many of these high cost markets," said Freddie Chairman and CEO Richard Syron.[24] The rate for a conventional mortgage larger than the $417,000 cap is currently about 1 percentage point higher than a conforming mortgage.[7]
Gravelle said the Rowdens got a better rate by taking out a traditional 15-year conventional loan for $417,000, with a 5.625 percent rate. They then secured an adjustable-rate home equity loan for $150,000, with a current rate of 5 percent, for the remaining financing. Other obstacles include requirements by the agencies that buyers must make larger down payments if they are in a market where home prices are declining.[6] You can get the best combination of rate and fees if you're borrowing less than $417,000 to buy a house as a primary residence, and you make enough money to easily afford the payments on a 30-year, fixed-rate loan, and you made a down payment of at least 20 percent, and the house is in a neighborhood where prices are not falling, and you have good-to-excellent credit, with a score of 740 or above.[10]
Based on the current market prices we use to value many of our credit-related exposures for financial reporting purposes, we are still receiving below-market compensation for our guarantee. This requires us to hold capital against these loans where we are undercompensated, and, therefore, limits our ability to provide sustainable liquidity to fund mortgages." This is what I like to refer to as more "good paying for the bad" mentality. Their changes have now increased the credit score requirements to a minimum of 720; depending on transaction type, to avoid additional fees and/or higher interest rates.[9] You should also understand that jumbo loans carry risks other than credit risk. Because of their size, they are much more sensitive to interest rates and prepayment risk. They do not perform the same way as "true" conforming loans, so they will never be treated the same, as fungible, vanilla, no-brainer investments.[26] Conforming loans have gotten cheaper, with average interest rates plunging to 6 percent or less. Jumbos have become pricier, with interest rates ranging above 7.5 percent in recent weeks before dropping to a bit above 7.25 percent earlier this week.[11]
Why on earth is a 7.5% interest rate for a jumbo loan "absurd?" You must be too young to remember the historical norms for mortgage rates.[26]
"A good amount of people out there are in that scenario," O'Neil said. Homebuyers such as Peter and Catherine Rowden didn't benefit either. The couple recently found their ideal second home, in the Robbins Wharf condominium development on Plymouth Harbor. They have no mortgage on their primary residence in Groton, and their mortgage broker wanted to use the new program to finance the $740,000 waterfront property - they would get a $523,750 mortgage and pay cash for the rest. Gravelle, their broker, said the couple would have to make a very large down payment - 40 percent is required for second homes - to get the best interest rate.[6] The rates on loans above $523,750 carry an absurd average interest rate of 7.5 percent.[26] In Boston, the companies will now purchase loans in amount up to $523,750. That has reduced interest rates a little for larger loans.[26]
In essence, any new loan for current or new homeowners with scores below 680 may see higher fees or interest rates.[9] "The liquidity not only for subprime loans dried up, but also for jumbo loans." That's reflected in the divergence of two key interest rates over the last 12 months.[11] The basic problem: The average interest rate on smaller loans is about 5.875 percent.[26] People with bad credit, and people who need large loans, have been stuck in the same boat -- pay a much higher interest rate, or go fish.[26]
"No single issue affects California's housing recovery more than access to mortgage credit that fits California's home prices. These actions will help more California families achieve the dream of homeownership and provide another tool in our effort to reduce foreclosures. "I urged Congress to raise the conforming loan limits in order to provide Californians with more affordable mortgage options and I'm very pleased that call to action was answered, but I continue to urge the federal government to make these new higher limits permanent.[25] Their actions, which allow for loans as high as $729,750, stem from the new higher federal loan limits requested by Governor Schwarzenegger and included in the federal economic stimulus package signed by the President earlier this year.[25] Led efforts urging Congress and the Bush Administration to raise federal loan limits. Last fall, the Governor sent a letter calling on Congress to increase those limits and sent a similar letter again earlier this year. After Congress and the President approved a temporary increase, the Governor asked them to make the increase permanent.[25]
"Even if you had an 800 FICO score and 50 percent equity," said Lipes, "you still might not be able to get a condo loan" under certain circumstances. It all depends on whether the underlying project can pass the highly restrictive underwriting tests, whether it is in a declining market, and whether there is a lender "concentration" limit on it. Some large private mortgage lenders refuse to finance more than a set percentage of units in a single condo project to limit their exposure to possible losses. [22] "When the subprime mess came to full fruition, jumbo loans got thrown in with all the subprime loans," said Tom Parker, president of Home Team Mortgage, the in-house mortgage company of Ebby Halliday Realtors.[11] All available data shows that default rates on jumbo loans closely approximate the low default rates on conforming loans.[26] The absurdity isn't the absolute price. It's the relative price -- the gap between rates on conforming and jumbo loans.[26]
Jumbo loans do not perform the same under different market conditions as true conforming loans. Investors are not going to take on those added risks for free.[26] What we are saying is allow us to borrow money on the terms of our credit worthiness. Jumbo loans, likely are a better credit risk than conforming loans if given to people that can afford them.[26]
For the classic 30-year fixed-rate mortgage, a conforming loan would currently cost 5.88% and a jumbo 6.88%.[7]
Freddie Mac conforming jumbo mortgages can be used to finance properties in hundreds of high cost markets designated in the Economic Stimulus Act of 2008 President Bush signed on February 13.[4] "Today's announcement marks the first large-scale effort to jump-start the stalled jumbo mortgage market under the Economic Stimulus Act," Freddie Mac said in a statement.[5]
For more information on Freddie Mac conforming jumbo mortgage products, visit http://freddiemac.com/singlefamily/increased_limits.html.[4]
Freddie Mac purchases single-family and multifamily residential mortgages and mortgage-related securities, which it finances primarily by issuing mortgage-related securities and debt instruments in the capital markets.[4]
Freddie's planned loan purchases will free up capital in the private mortgage market that can be used to make new loans.[7]
Loans between the old loan size limit of $US417,000 ($A444,184) and the new $US729,750 ($A777,322) limit have been dubbed by some as jumbo-conforming. Both companies issued their jumbo-conforming guidelines in March with Fannie Mae drawing criticism from brokers over the tight mandates that their loans must meet.[18] In a separate statement on Thursday, Fannie Mae said that it, too, has been making strides to finance the larger home loans.[5] The government sponsored enterprise is looking to increase its capital to boost the amount of funds it has access to for larger home loans.[28]
Joined the OneCalifornia Foundation to announce a bridge loan fund for homeowners facing foreclosure in Oakland. Launched a $1.2 million public awareness campaign to help educate homeowners about options that can help them avoid losing their homes to foreclosures. Announced an agreement with major loan servicers to streamline the loan modification process for subprime borrowers living in their homes.[25] Announced $69.5 million in permanent low-interest loans from the Proposition 1C housing bonds to jumpstart 14 affordable multi-family projects up and down the state, helping more than 1,000 California families and individuals realize the dream of an affordable rental home.[25]
Mortgages between $417,000 and $523,750 require 15 percent down payments in declining markets, compared with 10 percent for loans under $417,000.[6] Loans between the old loan size limit of $417,000 and the new $729,750 limit have been dubbed by some as jumbo-conforming.[5] The program has numerous other barriers, in addition to high rates. The two agencies have placed steep fees and qualifications on the new loans that further limit their availability.[6]
Mortgage companies and bond-rating firms basically stand accused of lying to investors over the last several years about the quality of packages of mortgages called mortgage-backed securities. Their actions were the equivalent of taking a quality assurance label trusted by shoppers and slapping it on all manner of products, some of which deserved it and some of which did not. The label in this case was a AAA bond rating, and it was supposed to indicate a high likelihood those mortgages would be repaid. Many of those mortgages were not repaid. A recent article in the Wall Street Journal described the complicity of the companies that rated the investments, such as Moody's. The result is that investors now want a huge premium to buy those packages of mortgages, which means borrowers are paying higher interest rates for anything but "conforming loans." [26] About $19 billion in private-label securities backed by jumbo mortgages was issued between October and December last year, according to government data. That was less than half the amount issued between July and September. "There's no appetite on Wall Street to buy those notes anymore," said Mike Anderson, CEO of Reliance Mortgage Co. in Dallas.[11]
Qualified borrowers can also obtain cash-out refinance conforming jumbo mortgages that provide a maximum cash-out of $100,000.[4] In January, about 1.3 percent of prime jumbo mortgages were 60 days or more past due, compared with 2.2 percent of prime conforming mortgages, according to First American CoreLogic Inc.' s LoanPerformance, which tracks mortgage data.[11] Prime jumbo mortgages are actually less risky than conforming mortgages of the same quality.[11]
I am building a house, and need a non conforming jumbo loan. My wife and I are both physicians and have paid our way through medical school.[26] People have to be pretty well off in order to afford a jumbo loan. Why do they need to be given even more government hand-outs by making jumbo loans more affordable? Welfare for the rich is just plain wrong.[26]
To address that problem, Freddie has agreed to make 90-day commitments to Wells, J.P. Morgan and Citigroup on how much it will pay for the loans.[1] The government-chartered mortgage company agreed to say how much it will pay for bigger loans or charge to guarantee related bonds as many as 90 days ahead of sales or securitizations, said Bob Ryan, the McLean company's vice president of mortgage-credit pricing.[8] Rosemary O'Neil, vice president of Norwell loan broker Conway Financial, said the program has not permitted refinancings by people who bought a house using two mortgages - "piggyback loans" - a popular strategy during the housing boom.[6]
We believe price certainty is important to help facilitate an efficient market for jumbo-conforming mortgages. Since April 1, we have been making jumbo-conforming whole loan pricing available for lenders large and small in order to provide as much liquidity as possible to this sector of the market.[27] The increase in average loans compared with the first quarter of 2007 was primarily a result of acquisitions and higher commercial and residential mortgage loans.[28] Average loans of $69.3 billion for the quarter increased $15.3 billion, or 28% from the year ago period, and increased $2.2 billion, or 3%, compared to the fourth quarter of 2007.[28] The increase compared with the linked quarter was mainly the result of growth in commercial loans and the transfer to the loan portfolio during first quarter 2008 of approximately $1.8 billion, or $.7 billion average, education loans previously held for sale.[28]
At 7.5 percent, the same borrower would shell out almost $500 more each month and an extra $180,000 over the life of the loan.[11] Doing a cash-out refinance to get a loan of 90 percent of the home's value? Add a fee of three-eighths of a percent of the loan amount if your credit score is 740 or above, and a bigger fee if the score is lower than that.[10] For instance, said Sutcliffe, the new Fannie guidance requires loan officers to make certain that at least 10 percent of a condominium project's current operating budget is reserved for "capital expenditures and deferred maintenance." Sutcliffe, who has analyzed condo project budgets for two decades, says there are no wiggle-room provisions in the guidance for "compensating factors," such as when part of the line-item reserves are for important but nonphysical expenditures such as insurance. Some loan officers will simply look at the "reserves" item and, if it's below the 10 percent mark, might reject the whole building and refuse to take loan applications on individual condo units, according to Sutcliffe.[22] The new loans also require lower debt-to-income ratios - 45 percent, compared with about 51 percent for traditional loans.[6]
Getting a 40-year loan? Add a fee of 1 percent of the loan amount (or about a quarter of a percent to the rate).[10]
Here's a short history of the reason: Two companies created by the federal government basically promise to buy loans below the magic size, known as the conforming loan limit.[26] Even risk aside jmbos will trade higher than conforming loans, all things being equal.[26]
Signed legislation to increase protections for Californians who own or plan to purchase homes and to expand affordable housing opportunities. Issued new regulations to protect borrowers, which requires lenders to consider a borrower's ability to repay at the higher reset interest rate and mandates closer scrutiny of risk features such as interest only payments, reduced documentation and simultaneous second liens. [25] Dr. Roberts is not the only one following that strategy, despite the risk that interest rates could rise, said Gary Akright, president of Dominion Mortgage Corp. in Dallas. "One way you can do it is to take an interest-only feature," he said.[11]
A recent Freddie Mac advisory stated, "Our previously announced rate increases do not fully offset the increased risks of on-going changes in market conditions. [9] "The reason you have two of us (GSEs) is so you have competition," Freddie Mac Chief Executive Officer Richard Syron told reporters after an analyst meeting in New York in early March. Freddie Mac's requirements cast a wider net for jumbo business, he said.[18] Over the years, Freddie Mac has made home possible more than 50 million times, ensuring financing for one in six homebuyers and more than four million renters.[4] Quoting Freddie Mac officials, the report said the government-sponsored enterprise will announce the agreement with Wells Fargo & Co (WFC.N: Quote, Profile, Research ), JPMorgan Chase & Co (JPM.N: Quote, Profile, Research ) and Citigroup Inc (C.N: Quote, Profile, Research ).[12] Freddie will finance up to 90 percent of a house's value, giving a much-needed source of liquidity to the participating lenders: Wells Fargo (NYSE: WFC), WaMu (NYSE: WM), J.P. Morgan Chase (NYSE: JPM) and Citibank (NYSE: C).[24]
For months, mortgage lenders have been backing away from borrowers with spotty credit, all but closing down the so-called subprime mortgage market. More surprisingly, they've also been increasingly loath to lend to high-end borrowers who might want to finance a home in tony Preston Hollow, say, or the Park Cities. [11] WASHINGTON, April 17 /PRNewswire-FirstCall/ -- Fannie Mae NYSE: FNM is providing price certainty for all our customers for jumbo-conforming mortgages.[27] On Jan. 1, Fannie Mae's price adjustments, known as credit score- or risk-based pricing, began.[9]
I f you own or plan to buy a condominium, an ominous new phase of the mortgage credit squeeze could be looming on your horizon. [22] The benchmark jumbo 30-year fixed, for bigger mortgages, fell 6 basis points, to 7.32 percent.[10] The benchmark 30-year fixed-rate mortgage rose 7 basis points, to 6.03 percent, according to the Bankrate.com national survey of large lenders.[10] The benchmark 5/1 adjustable-rate mortgage went the other way, falling 10 basis points, to 5.85 percent.[10] The benchmark 15-year fixed-rate mortgage rose 9 basis points, to 5.65 percent.[10]
One year ago, the mortgage index was 6.29 percent; four weeks ago, it was 5.98 percent.[10]
Non-interest expense during the quarter rose to $1.042 billion from $944 million in the prior year first quarter, but was down compared to $1.213 billion for the fourth quarter of 2007.[28] Taxable-equivalent net interest income totaled $863 million for the quarter, an increase of 37% from $629 million a year ago and an increase of 8% from $800 million in the fourth quarter of 2007.[28]
Revenue during the quarter grew 13% to $1.830 billion from $1.620 billion in the prior year quarter.[28] Average deposits during the quarter grew 17% to $81.6 billion from the year ago quarter.[28]
Freddie Mac shares were recently trading up 34 cents, or 1.22%, at $28.12. [15] Freddie Mac is a stockholder-owned corporation established by Congress in 1970 to support homeownership and rental housing.[4] For additional information about Freddie Mac, visit: http://www.freddiemac.com/.[4]
Fannie and Freddie sock your lender (and, therefore, you) with a fee of one-half of 1 percent. [10] The Labor Department announced that overall wholesale prices rose 1.1 percent in March -- a rate that's about six times faster than the Federal Reserve's comfort level.[10] Mortgage rates continued to ride the seesaw this week, down one week and up the next. This time, it was their turn to go up.[10] There's something else that has a more direct effect on the mortgage rate that you pay: risk-based pricing.[10]
I financed $500K of a $629K purchase last summer with a 6.125% 10/1 ARM. I'll be interested to see if I can get into a fixed-rate for under that rate without paying points or closing. [26] As Blanton reports, it has yet to kick-start the market for the "jumbo-lites," the loans between $417,000 and $523,750.[26] Until recently, loans that cross the $417,000 threshold had been off-limits to GSE's.[28]
In February, the Governor met with the U.S. Department of Housing and Urban Development Secretary in Washington D.C. to reiterate the importance of a permanent loan limit increase. [25] Some banks have continued making larger loans, but credit standards have become so strict that some have joked the ability to walk on water might be added to the list of conditions that must be met.[24]
Richard Syron, chief executive of the McLean, Va. -based-company said the move "shows how we can bring new liquidity to markets other investors have all but abandoned and make full use of the new tools Congress gave us to help restore stability during the current housing crisis." [13] Announced more than $72 million in federal HOME Investment Partnerships Program funds to provide assistance to first-time homebuyers, reduce the number of bank owned homes and increase the number of rental properties.[25]
SOURCES
1. Freddie Mac to Unveil Lenders' Pact - WSJ.com
2. Imperial Valley News - Schwarzenegger Applauds Actions Boosting Mortgage Availability in California
3. Freddie Mac to buy mortgages from Wells Fargo,Chase, Citi, Wamu
4. Freddie Mac to Buy Conforming Jumbo Mortgages in High Cost Markets From Wells Fargo, Chase, CitiMortgage, WaMu
5. Freddie Mac to buy jumbo loans from 4 top lenders | Reuters
6. Another try - The Boston Globe
7. Freddie Mac Super-Sizes Its Program - Forbes.com
8. Freddie Mac, Banks Reach Deals on Jumbo Mortgages - washingtonpost.com
9. Green Bay Press-Gazette - Guest columnist: Mortgage monopoly under way?
10. ReviewJournal.com - Real Estate - Adrift in choppy waters, mortgage rates edge slightly higher this week
11. Jumbo mortgages caught up in subprime fallout | Dallas Morning News | News for Dallas, Texas | Dallas Business News
12. Freddie Mac to announce agreement with lenders: report | Reuters
13. Freddie Mac to buy up to $15B in higher value mortgages
14. Freddie Mac to Offer Banks Pricing Commitments - International Business Times -
15. UPDATE: Freddie Mac To Buy $10 Billion To $15 Billion In Jumbo Mortgages
16. The Modesto Bee | The Buzz On Business
17. DSNews.Com Default Servicing In Print and Online - Formerly REO Magazine
18. Freddie Mac to buy jumbo loans - Breaking News - Business - Breaking News
19. Freddie Mac to revive housing market - Pravda.Ru
20. Report: Freddie Mac to Buy Jumbo Loans
21. Free Preview - WSJ.com
22. Condo loans could be tougher to get - BostonHerald.com
23. Mortgage Confidential: What is a "VA" loan? - WalletPop
24. Freddie Mac working with Citibank, others to finance more home buys - Los Angeles Business from bizjournals:
25. California Gov. Schwarzenegger Issues Statement Applauding Actions Boosting Mortgage Availability in California | All American Patriots
26. Faltering help for high-dollar borrowers - Boston Real Estate - Boston.com
27. Fannie Mae :: Statement by Brian Faith, Managing Director, Communications, on Jumbo Conforming Loan Pricing, April 17, 2008
28. RTTNews - Breaking News, financial breaking News, Positive EPS Surprises, Stock research .
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