Where Did The Jumbo Loans Go?

You've likely read the stories of large lenders and investment giants writing down their mortgage portfolios by the billions, as the media places the blame on subprime mortgages. What the public needs to know as that nearly 80% of all subprime mortgages are actually performing, losses can also be attributed to the number of cities suffering from large depreciation, impacting luxury homes in various markets to the tune of well over $100,o00. So as Fannie and Freddie shoulder the losses on Conventional Conforming loans, those who purchased mortgage-backed securities over the last several years, have no safety net and are forced to take the losses themselves.

Almost overnight, the appetite for non-conforming loans, even those for borrowers will exceptional credit profiles, has disappeared. Fixed rate Jumbo mortgages have climbed well over 7%, moving the spread between and Conventional and Non-Conventional loan over .75% at a minimum, and in many cases even more. So are there just no options? This is not the case, although criteria for approval has certainly changed, these loans are available and mortgage brokers have the advantage as qualification standards, as well as rates, vary based on the investor.

Adjustable rate mortgages are still attractive, with fixed periods available from five to seven years, and rates as low as 5.75% in recent weeks. Down payment is critial, as well as liquid reserves (cash and marketable securites, not the wine collection), but the options exist, only time will tell if we will see the secondary market realize that low risk borrowers deserve more options. For now, it will be up to portfoio lenders to set the standards by which borrowers must meet.

Fannie and Freddie...

With the increasing media attention surrounding Fannie Mae and Freddie Mac, more and more people are asking my thoughts on the future of these mortgage giants. Will they stay publicly traded companies, or be privatized by the government in an effort to hide the losses many economists believe will continue over the next several years?

What's clear is the losses show no end in sight as foreclosure rates rise at a staggering pace. Many of the homes we are seeing in the foreclosure process now, began with loans closed in 2003, originally originated as five year adjustable rate mortgages, now adjusting to their new rates...most much higher than what the borrower was comfortable with. Couple this with real estate depreciation in many areas, and the lack of, or total loss of equity in these homes, many homeowners are electing to walk-away from their homes rather than reduce the principal balance of their mortgages to match the home's value.

As we watch this storyline unfold over the coming months, one thing is clear to me, and that is the government will not let these two critical agencies fail. The reason for this is that they are both critical to the real estate industry as they make billions of dollars in mortgage money available through the secondary market. I tend to believe that if the losses continue to mount and the stock prices suffer further, these agencies will be privatized no only to secure their future, but to hide the losses from the public in an effort to restore consumer confidence and stabilize the troubling real estate market from its current condition.