Thursday, May 08, 2008

Manhattan Beach Beach Cities: Looking for a Jumbo Loan.. Keep on Looking..

Last March the government finally agreed to increase the conforming loan limit from $417,000 to $729, 750 for higher priced areas. For a short time it looked as if Manhattan Beach and the Beach Cities along with other high priced California markets and those in other states would finally get a break on mortgages and possibly mortgage rates. The increase in conforming loan amounts would make it easier for a people to refinance and to purchase. Higher conforming rates made a lot of sense to my clients who are buying homes in Manhattan beach and the Beach Cities.

If you are looking for one of those loans.. forget it! At this point you probably have a better chance of winning the lottery then getting a jumbo loan with a decent interest rate. Lenders claim there is just too much risk but I don't really buy that little scenario. Oh, don't get me wrong I know lenders need to be compensated for risk but if the FED is backing the loans then the risk should be acceptable if these loans also have a high down payment. Even if banks charged 1% over current the lower conforming rate it would be better then we are now seeing in the market.

Nope... lenders can't possibly make jumbo loans at anything less then very high interest rates... unless of course you would be willing to take a short term adjustable rate. That they can do... at a pretty decent rate. Hmmm...Isn't pushing adjustable rates over fixed rates one of the things that got them into trouble in the first place?

We are seeing a little light at the end of the tunnel on foreclosures. One of the things the FED has managed by lowering the discount rate is to lower the prime rate. A number of loans that are and will be soon re-adjusting will do so at a lower rate then they would have even four months ago. This will diminish a number of foreclosures that might have happened. With the tougher underwriting guidelines and higher down payments new jumbo loans are probably a better bet then the conforming loans lenders were jumping all over themselves to make a few years ago. So why don't lenders want to make these loans....

I have a theory... I don't think it has as much to do with the amount of the loan as it does with the fact that lenders know rates are going to go up and don't want to be stuck with a 6%..30 year fixed rate loan... on large amounts of money. I think lenders would like to do away with fixed rate jumbo loans and instead do 10 year adjustable loans in the expectation you will refinance in about 7 years and they won't be stuck with 30 year low fixed rate loans. If rates jump to 8-9% in the future who wants to be stuck with a bunch of 6% loans.

Lenders talk a good story but the truth is they don't like 30 year fixed rate loans. They have always made it far harder to get a fixed rate loan then an adjustable. I have never understood the rational that makes it harder to qualify for a loan that has the same payment over the life of the loan. Whereas an adjustable with a payment that continually changes is far easier to obtain. This has never made sense to me. It seems far less risky to make a fixed rate loan.

Anyway... that's my theory.. and I'm sticking to it..

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