Thursday, May 21, 2009

Jumbo Woes

Posted in the American Banker:

The National Association of Realtors is lobbying the federal government to support the jumbo mortgage market.

The trade group says it thinks securities backed by these loans should be eligible for purchase through the Term Asset-Backed Securities Loan Facility or the Public Private Investment Program. The association also says it wants the government to consider temporarily lifting the limit for conforming mortgages and "facilitating" warehouse lending to small and midsize lenders.

The association released a study last week analyzing the impact of the jumbo market on the housing market and broader economy.

As recently as 2007, jumbo mortgages comprised 10% of all mortgages for home purchases and 30% of mortgage originations in dollar volume. The share of home sales above $750,000, however, has now fallen to about 2.3% of home sales overall, as bigger loans have become more expensive and harder to find.

The government has already acted to help homebuyers in high-cost markets by lifting the limit on conforming loans in these areas to $729,750, compared with $417,000 in most parts of the country. But this has not stopped spreads on jumbo loans from rising sharply. In 2005, these loans typically had interest rates 144 basis points above 10-year Treasuries, but this spread had risen to 387 basis points by March 2009. The association said the bigger spread "does not appear warranted by increased risk."

It said that in high-cost areas, such as California, New York and Florida, the lesser availability of jumbo loans appears to work its way through much of the market, further depressing home prices.

One homeowner presumably affected by problems in the jumbo mortgage market is Bank of America Corp.'s chief executive, Ken Lewis, who has reportedly cut the price on his vacation home on Springs Island, S.C.

A story in The Wall Street Journal last week said that Lewis has been unable to find a buyer. He bought it in 2002 for $3 million and is listing it for sale at $3.3 million. The story did not report the previous listing price.

1 comment:

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