Sunday, March 22, 2009

'Jumbo' Financing in Pipeline

New money is about to flow into an area of the real estate market that has been hardest squeezed by the credit crisis: …jumbo mortgages.

Major banks are heading into the jumbo segment, originating big loans at affordable rates. Bank of America is rolling out a large program to finance loans between about $730,000 and $1.5 million, with fixed 30-year rates starting in the upper 5% range.

The bank's head of consumer real estate operations, said there's "a real need" for capital in the jumbo arena, where interest rates last fall sometimes exceeded conventional loan rates by three to five percentage points -- if financing was available at all.

Bank of America's new program requires hefty liquid resources -- six months of principal, interest, property tax and insurance payments in reserve -- plus fully documented income, solid credit scores and a full appraisal. Bank of America quotes a minimum of 20% [downpayment requirement]. [Source]

The decrease in interest rates on jumbo loans is a life-line to the Los Angeles real estate market. The current perniciously high jumbo-loan rates in the high 6% range (when available) have brought the high-end market to a virtual standstill.

In addition to Bank of America, ING Group is offering jumbos loans, some as large as $2 million with a minimum down payment of 25%. Current rates start around 5%. ING's jumbos are 5/1 and 7/1 hybrids, with a fixed interest rate for the first five or seven years, adjusting each year thereafter.

The difference in monthly payment on a $1 million loan at 5.0% and 6.75% is $1,118. Homeowners on the Westside and in other high-end Los Angeles areas are going to benefit from these lower rates.