Jumbo Loans = Jumbo Problem!

I believe we all like some of the signs coming in today for Real Estate…at least in the overall number of contracts being written. It does appear that demand is beginning to come around with the discounts offered from many of the REO properties, and short sale scenarios. Couple this with the tax credit, and other incentives towards First Time Homebuyers, and the numbers can be falsely positive.

There is a big…let me re-phrase that: There is a JUMBO Problem that is beginning to scream loudly…and needs attention.

To make sure we are all with a crystal clear understanding, a Jumbo Loan is a single mortgage that is higher than $417k.

Do you know what is required to obtain most Jumbo Loans?
1. 20 to 25% Down Payment (some areas may be higher)
2. A 720 credit score or higher

Most areas have seen an increase in demand of homes that are priced below $450k, and the homes that are above $450k have typically dropped in demand significantly.

There are several reasons for the reduction in the volume of sales for this range, but the primary reason is the difficulty of obtaining financing for a Jumbo Loan. If this situation does not find some relief to have lenders be able to get back to a “healthy” (not sub-prime, and not exotic type loans, but good sensible lending) lending practice for this price range, we will soon be faced with a deeper hole that will perpetuate our existing problems with foreclosures.

What would be considered healthy?

I have talked to several people in the lending industry and the general range would be 10% down payment, and a minimum of 650 on the credit score…with full documentation to prove the relevant facts.

We need the banks to help themselves first.

Until they can attract more buyers to the Jumbo type of loan, the foreclosures in this range will begin to become a significant problem, and pricing could see a significant problem in this range.

So, hopefully lenders can see this and figure out how to assist in increasing the demand in lieu of exaserbating something that will keep supply increasing, and demand decreasing…it is a catch 22 for the lenders, but the risk of doing nothing is greater than trying something.