The current home loan landscape has been largely very unkind to those who were out to purchase a house using a jumbo vehicle or to homeowners who wanted to refinance an expensive property. In simple terms, when the loan amount goes above the Fannie Mae and Freddie Mac conforming limit it becomes a jumbo because the mandate of the above two agencies bans them from buying these high-priced loans on the secondary market. Generally the limit varies between $417,000, for areas considered general, and goes all the way up to $729,750 for high-cost regions. Las Vegas cut-off point today is $417,000.
Jumbos have been out there all along but at much higher mortgage rates than the conforming ones and requiring serious down payments, basically pushing them out of reach for most borrowers. Something positive is now happening, though, in that sector. Several major lenders are returning to the arena with rates that are again making sense, one offering a 30-year program with a rate in the high 5's. Another has come up with a 5-year ARM at about 5%.
The significance here is that these banks are writing this paper for their own portfolios. The Wall Street private bond market for jumbo mortgages continues to be pretty much dormant, so they are just moving in to fill a void. They see a legitimate business opportunity and are stepping forward to be there with their products. Underwriting requirements are still rather strict, normally to the tune of high down payments, large cash reserves, full doc, solid FICO scores and at least one appraisal.
This also signals that the banking segment is beginning to feel more confident about the real estate market, which possibly is on the verge of turning around. Maybe not yet in all the areas but at least in enough of them to warrant their increased presence. The government's involvement with bailout funds and various guarantees has helped them at least partially clean up their ravaged ledgers and evidently they now feel secure enough to expand mortgage lending. Washington's tireless effort to stimulate the still reeling housing market seems to now show the first signs of bearing fruit.