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Jumbo Mortgages are Back

06/08/2010
The good news is, the jumbo product is back. A slowly awakening private securitization market combined with the lowest mortgage rates in years means loan originators can get back to work convincing jumbo borrowers to purchase and home refinance.

Going forward though, one thing is clear: Investors want the product but not the risk. As a result, a determined effort will be made to minimize risk by requiring verifiable income documentation, asset documentation and an accurate appraisal of a property's value, and thorough credit checks.

A new era for jumbo mortgages
For the most part, the days of stated income deals are over. An exception to this rule might be the self-employed. Even the Feds have hinted of the need to cater to the self-employed by offering mortgage products geared towards their unique circumstances. Ideally these borrowers will have an above-average understanding of leverage and risk.

For this mortgage industry niche to once again flourish, the market must adhere to more stringent guidelines and maintain risk transparency. Interested borrowers should expect a maximum LTV of 80% and they should be ready to document everything. Depending on the loan specifics, interest rates will likely range between 5.75 and 6.00 percent. Borrowers will find fixed as well as adjustable rates, with rates floating and changing frequently.
For the jumbo loan niche to do well, property values need to hold steady or slightly increase. Another plunge in value or another setback in the economy likely will lead to another round of default among jumbo borrowers. A continued upswing in the economy, on the other hand, likely will lead to improved access to specialized loan products.

What should jumbo mortgage borrowers expect?

Jumbo mortgage borrowers should expect to undergo the same process as conventional borrowers. Aside from different terms, lenders will diligently check every bit of information provided by the loan officer on the application and verify all supporting documentation submitted. What has not changed is the need to ensure that the four C's - Collateral, Capacity, Credit and Character - fit lending guidelines. Of course, loan applications must also meet acceptable risk criteria.
Closer attention to property appraisals will be paid in an effort to avoid the costly mistakes that result from inaccurately-valued property. Two appraisals conducted by independent agencies will be required for Super Jumbo loans. The dual appraisal helps identify all potential risk that could result should the borrower default.

Additional services may be needed at closing to meet the lifestyle and/or career demands of the jumbo borrower. Aside from that, the closing process is similar to that of a conventional mortgage closing.

Seasoned mortgage professionals should keep all of this in mind as they pursue and conduct business with jumbo mortgage borrowers.

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