06/18/2010 Since 2007, the disparity between jumbo home loans and conforming loans has become more pronounced, not less. This creates problems for people looking to buy average-sized family homes in areas of the country where housing prices are higher since most need jumbo loans. Inside Mortgage Finance reports that nearly four percent of the people who have purchased homes using jumbo home loans exceed the Home Stability Plan ceiling. The percentage increases in areas considered more expensive, like New York and California. There, the percentages are 8 and 17 percent respectively.
The Home Stability Plan offers buyers a safety net should they fall on financial hard times by transferring the bank's responsibility to Fannie Mae and Freddie Mac. Some have suggested that the ceiling be set at $1 million. Doing so would allow people living in more expensive areas a chance to reap the benefits of the Fannie Mae and Freddie Mac Home Stability Plans.
Naturally, there is opposition to this suggestion. Those opposed feel strongly that this is not the audience Fannie Mae and Freddie Mac were designed to support. Instead of helping financially strapped homeowners hold onto their homes with infusions of cash, they believe the agencies should be supporting less affluent citizens.
Jumbo or conforming, which is right? There was a time not long ago when choosing between a jumbo and conforming loan was easy. Prospective homeowners had a choice between a jumbo loan, a home equity loan or a first or second mortgage. Since they attracted lower blended interest and didn't require Private Mortgage Insurance (PMI), first and second mortgages were popular. However, their popularity has declined considerably since the onset of the global financial crisis. When it came to refinancing a home loan, jumbo mortgages were easier. But that changed with the arrival of the Home Equity Plan which basically left borrowers in a position of fending for themselves. Very few jumbo loans were available during the height of the financial crisis and those with jumbo loans found their refinancing options extremely limited.
Today, more banks are offering jumbo loans. Two big lenders, Bank of America and ING Direct, offer rates on 30-year jumbo loans as low as 6 percent and 5.5 percent respectively. A hybrid 5.375 percent 5- to 7- year fixed rate/ annually recalculated adjustable rate mortgage is being offered by First Internet Bank. GMAC offers jumbo loans to borrowers who can put 20 to 30 percent of the total loan value down. GMAC also announced its willingness to enter into loan modifications that conform to the Housing Stability Plan. Currently, just five percent of the loans handled by GMAC are jumbo loans. GMAC expects this figure to increase up to 15 percent by year's end based on projections of future business.
