Jumbo mortgage rates decline, but availability is spotty

CHICAGO — Jumbo mortgages became more expensive and harder to come by as the nation's credit crisis deepened. That might be starting to change.

"Jumbo" refers to mortgages that are too large to be bought by Freddie Mac or Fannie Mae. The "conforming loan limit" for those government-backed entities is $417,000 in many parts of the country, but goes as high as $729,750 in high-cost areas such as California and parts of Florida and the Northeast.

Bank of America recently began trumpeting its jumbo program, offering 30-year fixed-rate jumbo mortgages with rates in the high 5 percent range, said Vijay Lala, product management executive for the bank. "We decided it was time to really go after that market," he said.

More lenders may soon join in, said Guy Cecala, publisher of Inside Mortgage Finance.

Bank of America appears to have lower jumbo rates than its giant banking competitors Wells Fargo, J.P. Morgan Chase and Citibank, Cecala added. "I suspect the others will slowly follow suit," he said.

The average 30-year fixed-rate jumbo mortgage averaged 6.5 percent for the week that ended March 27 — the lowest since May 2007, according to HSH Associates, a publisher of consumer loan information. On Oct. 31, the average rate on a 30-year fixed-rate jumbo mortgage was 7.9 percent, according to HSH data.

GMAC also has been pricing its jumbos aggressively, said Paola Kielblock, national product specialist for Fairway Independent Mortgage, a mortgage broker and banker based in Madison, Wis. She recently has seen rates in the high 5 percent to the low 6 percent range for 30-year fixed-rate jumbo mortgages, and the low 5 percent range for 5-year adjustable-rate jumbos.

Bill Higgins, chief lending officer for portfolio lender ING Direct, said his firm has been offering jumbos in the 5 percent range even several months ago — when average rates were higher.

Lenders' interest in making more jumbo loans isn't surprising, said Keith Gumbinger, vice president for HSH.

Lenders no longer have many institutional buyers for their jumbo loans, forcing them to keep the loans they write on their books. Banks held back when cash was tight. But banks have more money to lend these days, as consumers have taken money out of the stock market and put it into safer investments.

"More cash comes in the door," Gumbinger said, and so "the loans go out the other side." Plus, banks have gotten assistance from the federal government, and record-low conforming mortgage rates have inspired more people to refinance loans — giving banks some more liquidity, he said.

For financial institutions, the return on a jumbo mortgage is also starting to look appealing.

Banks are "taking a look at what investment alternatives there are," said Higgins of ING Direct, and they "are saying 'we wouldn't mind a 6 percent to 7 percent asset on the books.' "

Borrowers in the market for this kind of loan, however, shouldn't expect a simple process.

Mortgage shoppers will find differences in price and availability from lender to lender, Gumbinger said. Jumbo programs vary greatly from one side of town to the other, he added, and lenders will sometimes originate a higher volume of loans for a while, then slow down when they've hit a certain point.

"To be honest, I'm not certain if 'the low rates' will be around for a while," Kielblock said.

If you think you're in the market for a jumbo mortgage, consider the following: Decide if you need a jumbo. Don't automatically assume that your mortgage will exceed the conforming-loan limits, said Cameron Findlay, chief economist of LendingTree.

As home prices have fallen and the U.S. has raised loan limits in some areas, more homebuyers probably need conforming mortgages. Some people who are looking to refinance and who originally needed jumbo loans may also fall within increased loan limits. With a conforming mortgage, you will likely get a better rate.

Availability may be increasing, but requirements are still stiff. Bank of America jumbo loans, for example, require at least a 720 credit score and a 20 percent down payment for a purchase (or 20 percent home equity on a refinancing). And borrowers need to have at least six months worth of reserves in the bank. ING Direct requires 25 percent down.

You need to shop around. "Borrowers need to shop around for any mortgage, but particularly for jumbos," Cecala said. "A small local lender or credit union may have a good deal, but you won't know unless you do your homework. Ask real-estate agents, your friends, or anyone who might have a lead on a good jumbo lender."

Compare apples to apples. Lenders often talk about their products in terms that don't allow you to easily compare with other lenders, Higgins said. Make sure to draw fair comparisons that consider mortgage fees and costs.