Lenders Loosen Reins on Jumbo Mortgages
It may be too early to announce a thaw of the mortgage market, but some early signs have emerged, at least in one important category: jumbo loans.
Mortgage industry executives say conditions are improving for those borrowing more than $729,750, the threshold for jumbo mortgages in the tristate region. Not only is it starting to get easier to qualify for these loans, they say, but rates are also coming down.
Real estate brokers are hopeful. “I’m cautiously optimistic,” said Dottie Herman, the chief executive of Prudential Douglas Elliman. While Ms. Herman has not yet seen the effects of an improved jumbo-lending environment on overall property sales, “as credit loosens up, it will help that higher-end market move up,” she said.
Frederick Wohlfarth, the president of Wohlfarth & Associates, a real estate broker in Manhattan, said he has already seen a 40 percent rise in sales requiring jumbo loans over last year.
At the same time, Prudential’s mortgage affiliate, DE Capital Mortgage, has had a spike in activity in jumbo loans over the last few months, according to Jan William Scheck, a branch manager. “So we’ll only start to see these transactions close in the next couple of weeks,” he said.
David Adamo, the chief executive of the Luxury Mortgage Corporation, a broker and banker in Stamford, Conn., said his company was offering jumbo loans on behalf of more lenders now than late last year. “It’s an indicator that the high end of the market is beginning to recover,” he said.
On jumbo loans Luxury Mortgage makes directly, he said, the most highly qualified borrowers can secure a 4.5 percent adjustable-rate mortgage, which is about half of a percentage point lower than the prevailing rate late last year. (The average rate for a 30-year fixed jumbo loan is 5.125 percent.)
These borrowers can also obtain that loan with a 20 percent down payment — or refinance as long as they maintain 20 percent equity in the home — compared with a 30 percent down payment needed at the end of 2009.
One element of the mortgage equation has not changed as sharply: borrowers must still have excellent credit to qualify for the loans. And that means credit scores of at least 700, along with enough cash in the bank to cover at least six months of payments, according to Mr. Adamo. On bigger loans of $1.5 million or more, borrowers will need a credit score of at least 740 to secure the best rates, industry experts say.
Alan Rosenbaum, the chief executive of the Guardhill Financial Corporation, a Manhattan mortgage broker, said, “Lenders are still focused on credit scores, but they’re actually analyzing the full picture now rather than just relying on computer-generated credit scores.”
Mr. Rosenbaum said he had also seen a relaxation in lending standards compared with a year ago. “And we have witnessed more lenders appearing recently, as they should,” he said. “A jumbo loan is one of the safest loans if standard underwriting guidelines are adhered to.”
This bit of good news for high-end borrowers is in lockstep with the improving risk profile for borrowers in general, said Dennis R. Capozza, a principal of University Financial Associates in Ann Arbor, Mich.
Dr. Capozza, who is also a finance professor at the University of Michigan, compiles an index that gauges the default risk for borrowers in every ZIP code in the nation. The latest index, which Dr. Capozza released in March, reached 158, less than half its peak of 330 in early 2007.
So a typical loan taken out today is less than half as likely to end up in default as one taken out in early 2007. Dr. Capozza said that shift should translate to improving loan terms.
In the greater New York area, loans made in Connecticut pose the lowest risk, Dr. Capozza said, scoring a 146 on the index, compared with 225 in New Jersey and 206 in New York State.
New York City, meanwhile, scored 410, which is down from a peak of 540 in 2007. In an era where some regions scored higher than 1,000, Dr. Capozza said New York City’s current figure was not alarming. But with its “overpriced real estate, falling house prices, high unemployment” and other factors, he said, “it is not a good time to be a mortgage lender in New York City.”
Dr. Capozza said jumbo borrowers could be the first to recognize improvements in the overall mortgage market, partly because they have not had the benefits of a government-subsidized mortgage market, which include historically low rates.
Mr. Adamo of Luxury Mortgage said the city’s economic picture did not necessarily suggest more lending risk. But because of Manhattan’s high concentration of co-ops and condominiums, borrowers are more likely to face higher interest rates. Buyers in co-ops or condominiums less than 70 percent sold, he said, will often face rates three-quarters of a percentage point higher than those seeking loans in more fully occupied buildings.
Some lenders, too, may not offer a loan on a condo or co-op apartment unless the development sets aside 10 percent of its annual reserves for building improvements, added Mr. Scheck of DE Capital Mortgage, a practice he called uncommon in New York.
“In some situations,” Mr. Scheck said, “it’s about having conversations with the board to try to meet those guidelines.”
By BOB TEDESCHI
Source: NY Times