Friday, March 27, 2009

Manhattan Beach-Beach Cities: The Return of the Jumbo loan

One of the biggest issues facing the Manhattan Beach-Beach Cities real estate market has been the lack of jumbo loans at reasonable rates. Most lenders who were making Jumbos were doing them at rates that were really high compared to the rest of the market... bouncing between 7.5%-8.5%. As our Beach Cities real estate market, even with current price declines, remains one of the most expensive in the state the lack of Jumbo financing has been troublesome.

The rumors started last December... lenders were going to begin funding Jumbo loans in the spring. In January there was a little movement from some of the big boys but rates were still fairly high compared to conforming rates. A few major lenders began offering loans at 6%-6.5% which was looking very good. Now it appears that Bank of America has stepped up and is offering Jumbo loans ($729,750+) at very competitive... actually dirt cheap... rates!

I called Bill Nazur at Bank of America to see what was happening... and the rumors are true. Bill has been making loans since the 80's and knows what's what when talking mortgages. The basics are that BofA is making jumbo loans $730,000 and up. They are making loans over $1million which had been the maximum for many lenders. Depending on your credit you can get one with 20% down at an interest rate between 5.625%-5.875% that is fixed for 30 years.... did I say dirt cheap rates! If you are looking at a sale price of $1,000,000 or less with 20% down your FICO has to at least 680. With a FICO of 720 you can purchase a home up to a$1.5 price with 20% down. Needless to say Bill is swamped with clients right now but he always has time to answer questions... so shoot him an email and he can give you more information on their program.

He recently qualified on of my clients for a $1.5 price with 20% down and and a fixed rate between 5.625%- $5.85 depending on when they lock in the interest rate. Bill told me that BofA has been doing these loans for some time. According to Inside Mortgage Finance they were the largest originator of jumbo loans in the 4th quarter of 2008. They are only making the loans via Bank of America directly. That means that you have to talk to someone at BofA to get the information on these loans. The bank is keeping these loans on an in-house basis in the bank's portfolio. No marginal borrowers allowed... you have to have good credit and reserves to get on of these loans.

Now that BofA has publicized their program I'm guessing you will see more lenders in-housing similar loans at equally competetive rates. This is good news for Manhattan Beach-Beach Cities homeowners who need to refinance a large loan and buyers who would rather not put 50% down on a home under $2 million.

Bank of America will loan on a $3 million purchase price... however over a $1.5 price they are looking at 30% down and FICO minimum of 720... the higher the FICO score the less you have to have to hold in reserve. I expect other banks will follow the same guidelines in the future.


Waiting... said...

What is the total number of closed sales in MB for March (so far)?

Kaye said...

17... 12 homes and 5 townhomes

mookie said...

I saw the same info on BofA early in the week and will be interesting. I still believe that those types of rates won't make a bit of difference in the decline of prices in MB, especially with unemployment continuing to rise and the banks getting ready for more multi billion dollar write downs with commercial RE and credit cards, to name a few. That being said, I'm curious what it takes for a $2mm home. You stopped at 1.5mm. How much down and what kind of credit score?

Thanks for the color, very insightful.

Kaye said...

I'm waiting to get complete information..

I know they will make loans up to 3 million but need more on what they are looking for in that range. My guess is FICOS over 780 and 40%-50% down with a loan of $2 million or more.

I'll post it when I hear back from lender.

mookie said...

Also, you comment about "dirt cheap" rates. Yes, at 5.5% for a 30 year, I agree. But remember, during the boom, you could get a 5/1 for as little as 4% so yes, while 30 year rates look good, that won't be enough to fuel another boom as what really fueled the massive buying spree in the US was 1/1, 3/1, 5/1s well below that level. Additionally, those loans required much lower credit scores and down payments and in fact, you didn't even need documentation. Even with 30 years where they currently are, only about 10-20% of the population will qualify when compared to the boom times.

In the end, sure, there will be more people who can qualify than 3 months ago, but not enough to drive sales...

Another question... what are terms for 2.5 and 3mm home?

Anonymous said...

I am new to this blog, but am in the market for a $629 loan, any news on what this rate is currently?

Kaye said...

Anon 7:55,
Rates have been bouncing around like crazy but you should be able to find a loan between 5%-5.375%

bondinvestor said...

this housing cycle won't be over until interest rates normalize. 5% long term mortgage rates are not sustainable. the risk of higher inflation is too high for these rates to be sustained at these levels for a protracted period of time.

3-5 years from now I suspect that interest rates will be 200-300bps higher. it will be tough for home prices to find a long-term bottom if rates are in a secular uptrend.

given that it's still much cheaper to rent in the south bay than buy (for comparable quality properties) i don't think the rate is going to matter that much.

Kaye said...

I believe isnterest rates are far more important then you believe. Buyers are looking for 30 year fixed rates rather then 5, 7 or 10 year arms.

I'm sure rates will go up as inflation becomes a factor. Higher rates will affect prices but by that time they may not have as much of an effect as you might think.

Kaye said...

Mookie 5:19,
Sorry I missed this comment...

My understanding is that BofA will loan $1.5-$3m with 30% down.

As far as 5.5% jumbo fixed for 30 years... that is a good loan in any market. Also I think you might be surprised at just how many people do have good down payments.

There has been this strange assumption that everyone who bought in MB did so with no money down and barely qualified. There were certainly buyers who bought with little down and really didn't qualify.. but most people who bought here in the $1.5-$2.5 range did have 20%-30% or more down. Generally these buyers had sold another home and used the cash from that sale to purchase. Above $2.5 most buyers had significant amounts of cash as down payments.

Now that doesn't mean that some of these people didn't use up their equity and now find themselves in trouble. It doesn't mean that a number of them didn't gamble on ARMS that will prove to be poor choices. It just means that there are probably fewer people in MB in serious trouble then in other places.

This won't stop prices moving downward. There are going to be more foreclosures as the economy remains in trouble. We will have problems... they just won't last as long as in other parts of the state.

mookie said...

Kaye, do you have YTD through March 31 median prices for SFRs in all of MB, as well as west of Sepulveda? Can you compare vs. YTD in 2008. Since Huggy won't post I'm hoping you will.

Kaye said...

I post stats for all of the Beach Cities...Manhattan,Hermosa, Redondo and El Segundo on a monthly basis.. In December I posted monthly stats from 2006-2008.
Hadn't thought about posting YOY for quarters.. but I can if you like. Give me a few days I'm very busy right now. I'll try and get to it this weekend..

Anonymous said...


Just to confirm, it's a $1.5mm loan with a 20% downpayment, so a total purchase price of $1.875mm, $375k down. Is this correct, or is it a $1.5mm purchase price, with 20% down, so a $1.2mm loan and $300k downpayment? Thanks for the clarification.

Kaye said...

Anon 10:10,
Sorry to be confusing.. I'll edit to make it clearer.. it is purchase price.. $1.5 price= 20% down= $1.2 loan...

Anonymous said...

That's too bad. I thought we were within striking distance of the magical $2mm, 20% down. Looks like we're not there yet and so I'll have to keep waiting. thanks.

Kaye said...

Anon 2:38,
I would call Bill.. give him your info and see what he says.