Jumbo Loan Defaults Rise at Fast Pace as Rich Suffer

[Ex-SD]

Feb. 20 (Bloomberg) — Luxury homeowners are falling behind on mortgage payments at the fastest pace in more than 15 years, a sign the U.S. financial crisis that began with the poorest Americans has reached the wealthiest.

About 2.57 percent of prime borrowers who took out jumbo loans last year were at least 60 days delinquent, according to LPS Applied Analytics, a mortgage data service in Jacksonville, Florida. They got to that level within 10 months, almost twice as quickly as 2007 borrowers and the fastest rate since at least 1992, when LPS Applied Analytics began tracking the market.

The jump in late payments on jumbo loans, while still lower than the 20 percent delinquencies in subprime mortgages, signals that the borrowers with the most money and the best credit are hurting as the U.S. recession deepens in its second year. It also means these loans will be even more difficult to obtain and more expensive to pay off.

“The biggest influence in rising delinquencies is related squarely to the economy rather than poor underwriting,” said Keith Gumbinger, vice president of HSH Associates, a Pompton Plains, New Jersey-based mortgage research firm. “We are apparently all suffering to some degree. It’s certainly more severe for some but still, it’s pretty much widespread.”

U.S. joblessness reached a 25-year high in January while the unemployment rate in the financial industry rose to 6 percent from 3 percent a year ago. It jumped to 10.4 percent from 6.4 percent in the category of professional and business services, according to the U.S. Bureau of Labor Statistics in Washington.

Jumbo Refinance

Raymond Young bought his lakeside home in Miami four years ago for $2 million cash and in 2006 took out a $1.4 million jumbo mortgage to pay for a real estate venture in Texas. Now, with home prices in his area down 40 percent from their 2006 peak, according to the S&P/Case-Shiller Home Price Index, Young needs to refinance because the Texas investment isn’t paying off and his income has dried up. He can’t find a bank to help.

“They’re telling me the house is only worth $1.3 million,” said Young, 46. “I’m upside down. I’m stuck. I’m in bailout mode but they’re bailing out banks and they’re not bailing out homeowners.”

President Barack Obama’s Homeowner Affordability and Stability Plan, announced this week, has no provision to help jumbo mortgage borrowers.

“People must have been surprised to lose their jobs or they didn’t realize the bottom hadn’t been reached yet on home prices,” said John Silvia, chief economist at Wachovia Corp. in Charlotte, North Carolina. “A lot of people weren’t paying attention.”

No Government Help

About 1.92 percent of homeowners with 2008 mortgages backed by Fannie Mae and Freddie Mac fell at least 60 days behind, LPS Applied Analytics said. Jumbo loans are bigger than what the two government-controlled agencies buy or guarantee, and Obama’s plan focuses on shoring up mortgages eligible to be bought by Fannie and Freddie.

Currently the Fannie-Freddie cap is set at $417,000 in most places and up to $729,750 in areas with higher home prices. The average credit score for 2008 jumbo loans was 762, LPS Applied Analytics said. Such scores are used to assess risk.

Jumbo lending slowed in the fourth quarter to $11 billion, or 4 percent of the mortgage market, the lowest quarterly amount since Inside Mortgage Finance started tracking that data in 1990. In 2007, jumbo loans made up 14 percent of total U.S. mortgage originations, according to the Bethesda, Maryland-based publication.

Financing Jumbo Loans

The top five U.S. jumbo lenders — Chase Home Finance LLC, Bank of America Corp., Washington Mutual Inc., Wells Fargo & Co. and Citigroup Inc. — originated a combined $55.3 billion in jumbos in 2008. They lent just $4.3 billion of that during the last three months of the year, according to Inside Mortgage Finance.

Banks don’t want to make jumbo loans because holding them on their books means they have to keep sufficient money in reserve in case borrowers quit paying, Inside Mortgage Finance Publications Chief Executive Officer Guy Cecala said.

The national average for a 30-year fixed-rate jumbo mortgage was 6.57 percent this week compared with 5.34 percent for a conforming loan, according to White Plains, New York-based financial data provider BanxQuote.

The difference in interest rates between jumbo loans and prime conforming mortgages, or mortgages eligible for sale to Fannie Mae and Freddie Mac and available to borrowers with top credit scores, had been about 20 basis points “for several decades,” according to BanxQuote CEO Norbert Mehl.

181 Basis Points

In August 2007, that difference jumped to as much as 200 basis points and has stayed between 100 and 200 basis points, Mehl said. A basis point is equal to 0.01 percentage point.

The difference between the jumbo interest rate and the prime conforming rate was 181 basis points on Feb. 18, according to Bloomberg data.

“The only jumbo mortgages being written right now have strict qualification criteria both in the credit rating of the borrower and the down payment requirements and they are nearly impossible to qualify for,” Mehl said. “Some lenders quote a jumbo rate but they don’t make the loans.”

Steve Habetz, president of Threshold Mortgage Co. in Westport, Connecticut, said he relied on Hudson City Bancorp Inc. in Paramus, New Jersey, and closely held, Manhasset, New York- based Apple Bank for Savings for jumbo loans.

Capacity is down because lenders everywhere are understaffed and “drowning in loan applications,” Habetz said.

Habetz said he had a customer with a 740 credit score who had a down payment of $500,000 on a $1 million home in Easton, Connecticut. The borrower had to wait two weeks for approval when in December he would have gotten the mortgage overnight.

“Mortgage lending right now is like wading miles and miles in waist-deep mud,” Habetz said. “It’s so difficult. Jumbo borrowers will be tortured and it’s nothing they should take personally because everybody is getting tortured.”

[CAwireman]

Ex-SD,

Nicely written article – thanks for sharing.

Now that banks are reeling, they are in a tough situation. Banks need to make loans to survive, but the loans they make need to be solid; and in a recesion/depression, solid borrowers may be few and far between. This situation gives rise to zombie banks.

The basic thought that your article seems to support is that now, the higher end properties will have much more downward pressure. Since must-sell properties won’t have the high valuations they enjoyed in the mid 2000’s, and getting loans for those properties is quite difficult in terms of credit qualification and down payment, this will likely have the result of lower prices for fancy shmancy homes.

For those in San Diego where even modest homes are on the pricey side, especially in desirable neighborhoods, the lack of availability of jumbo loans will keep non-must-sell property off the market, and will almost certainly result in sweet heart deals for buyers of must-sell property. But, I think this will take place more slowly because the rich or semi-rich may have more resources and connections to bring to bear on the situation and thus head off the need to sell or turn in the keys.

For the longest time, the belief was that the housing market wouldn’t sink because despite the bad underwriting practices, the economy was strong. The fact that most of the jumbo loans followed reasonable qualification guidelines isn’t protecting the banks. Rich homeowners, like poorer ones, are either loosing jobs, or made risky refi bets, etc, with the job portion of the equation becoming more and more dominant.

And, at a time when jumbo mortgage holders need a break, the interest rates charged are 200 basis points higher than in the past. That’s 10 times the rate from the past. I cannot see how upper end homes can continue to hold mid 2000 era prices.

[CAwireman]

Ex-SD,

Nicely written article – thanks for sharing.

Now that banks are reeling, they are in a tough situation. Banks need to make loans to survive, but the loans they make need to be solid; and in a recesion/depression, solid borrowers may be few and far between. This situation gives rise to zombie banks.

The basic thought that your article seems to support is that now, the higher end properties will have much more downward pressure. Since must-sell properties won’t have the high valuations they enjoyed in the mid 2000’s, and getting loans for those properties is quite difficult in terms of credit qualification and down payment, this will likely have the result of lower prices for fancy shmancy homes.

For those in San Diego where even modest homes are on the pricey side, especially in desirable neighborhoods, the lack of availability of jumbo loans will keep non-must-sell property off the market, and will almost certainly result in sweet heart deals for buyers of must-sell property. But, I think this will take place more slowly because the rich or semi-rich may have more resources and connections to bring to bear on the situation and thus head off the need to sell or turn in the keys.

For the longest time, the belief was that the housing market wouldn’t sink because despite the bad underwriting practices, the economy was strong. The fact that most of the jumbo loans followed reasonable qualification guidelines isn’t protecting the banks. Rich homeowners, like poorer ones, are either loosing jobs, or made risky refi bets, etc, with the job portion of the equation becoming more and more dominant.

And, at a time when jumbo mortgage holders need a break, the interest rates charged are 200 basis points higher than in the past. That’s 10 times the rate from the past. I cannot see how upper end homes can continue to hold mid 2000 era prices.

[CAwireman]

Ex-SD,

Nicely written article – thanks for sharing.

Now that banks are reeling, they are in a tough situation. Banks need to make loans to survive, but the loans they make need to be solid; and in a recesion/depression, solid borrowers may be few and far between. This situation gives rise to zombie banks.

The basic thought that your article seems to support is that now, the higher end properties will have much more downward pressure. Since must-sell properties won’t have the high valuations they enjoyed in the mid 2000’s, and getting loans for those properties is quite difficult in terms of credit qualification and down payment, this will likely have the result of lower prices for fancy shmancy homes.

For those in San Diego where even modest homes are on the pricey side, especially in desirable neighborhoods, the lack of availability of jumbo loans will keep non-must-sell property off the market, and will almost certainly result in sweet heart deals for buyers of must-sell property. But, I think this will take place more slowly because the rich or semi-rich may have more resources and connections to bring to bear on the situation and thus head off the need to sell or turn in the keys.

For the longest time, the belief was that the housing market wouldn’t sink because despite the bad underwriting practices, the economy was strong. The fact that most of the jumbo loans followed reasonable qualification guidelines isn’t protecting the banks. Rich homeowners, like poorer ones, are either loosing jobs, or made risky refi bets, etc, with the job portion of the equation becoming more and more dominant.

And, at a time when jumbo mortgage holders need a break, the interest rates charged are 200 basis points higher than in the past. That’s 10 times the rate from the past. I cannot see how upper end homes can continue to hold mid 2000 era prices.

[CAwireman]

Ex-SD,

Nicely written article – thanks for sharing.

Now that banks are reeling, they are in a tough situation. Banks need to make loans to survive, but the loans they make need to be solid; and in a recesion/depression, solid borrowers may be few and far between. This situation gives rise to zombie banks.

The basic thought that your article seems to support is that now, the higher end properties will have much more downward pressure. Since must-sell properties won’t have the high valuations they enjoyed in the mid 2000’s, and getting loans for those properties is quite difficult in terms of credit qualification and down payment, this will likely have the result of lower prices for fancy shmancy homes.

For those in San Diego where even modest homes are on the pricey side, especially in desirable neighborhoods, the lack of availability of jumbo loans will keep non-must-sell property off the market, and will almost certainly result in sweet heart deals for buyers of must-sell property. But, I think this will take place more slowly because the rich or semi-rich may have more resources and connections to bring to bear on the situation and thus head off the need to sell or turn in the keys.

For the longest time, the belief was that the housing market wouldn’t sink because despite the bad underwriting practices, the economy was strong. The fact that most of the jumbo loans followed reasonable qualification guidelines isn’t protecting the banks. Rich homeowners, like poorer ones, are either loosing jobs, or made risky refi bets, etc, with the job portion of the equation becoming more and more dominant.

And, at a time when jumbo mortgage holders need a break, the interest rates charged are 200 basis points higher than in the past. That’s 10 times the rate from the past. I cannot see how upper end homes can continue to hold mid 2000 era prices.

[CAwireman]

Ex-SD,

Nicely written article – thanks for sharing.

Now that banks are reeling, they are in a tough situation. Banks need to make loans to survive, but the loans they make need to be solid; and in a recesion/depression, solid borrowers may be few and far between. This situation gives rise to zombie banks.

The basic thought that your article seems to support is that now, the higher end properties will have much more downward pressure. Since must-sell properties won’t have the high valuations they enjoyed in the mid 2000’s, and getting loans for those properties is quite difficult in terms of credit qualification and down payment, this will likely have the result of lower prices for fancy shmancy homes.

For those in San Diego where even modest homes are on the pricey side, especially in desirable neighborhoods, the lack of availability of jumbo loans will keep non-must-sell property off the market, and will almost certainly result in sweet heart deals for buyers of must-sell property. But, I think this will take place more slowly because the rich or semi-rich may have more resources and connections to bring to bear on the situation and thus head off the need to sell or turn in the keys.

For the longest time, the belief was that the housing market wouldn’t sink because despite the bad underwriting practices, the economy was strong. The fact that most of the jumbo loans followed reasonable qualification guidelines isn’t protecting the banks. Rich homeowners, like poorer ones, are either loosing jobs, or made risky refi bets, etc, with the job portion of the equation becoming more and more dominant.

And, at a time when jumbo mortgage holders need a break, the interest rates charged are 200 basis points higher than in the past. That’s 10 times the rate from the past. I cannot see how upper end homes can continue to hold mid 2000 era prices.

[jpinpb]

Don’t forget Madoff. He touched a lot of people and the domino effect from the wealthy that he hurt will cascade down. The damage he did to people who were billionnaires were such they were never going to worry about money. Maybe they also owned property elsewhere that they will need to sell.

[jpinpb]

Don’t forget Madoff. He touched a lot of people and the domino effect from the wealthy that he hurt will cascade down. The damage he did to people who were billionnaires were such they were never going to worry about money. Maybe they also owned property elsewhere that they will need to sell.

[jpinpb]

Don’t forget Madoff. He touched a lot of people and the domino effect from the wealthy that he hurt will cascade down. The damage he did to people who were billionnaires were such they were never going to worry about money. Maybe they also owned property elsewhere that they will need to sell.

[jpinpb]

Don’t forget Madoff. He touched a lot of people and the domino effect from the wealthy that he hurt will cascade down. The damage he did to people who were billionnaires were such they were never going to worry about money. Maybe they also owned property elsewhere that they will need to sell.

[jpinpb]

Don’t forget Madoff. He touched a lot of people and the domino effect from the wealthy that he hurt will cascade down. The damage he did to people who were billionnaires were such they were never going to worry about money. Maybe they also owned property elsewhere that they will need to sell.

[Author]

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