Your IRS rebate check from the economic stimulus legislation won't be arriving until sometime in May, but the stimulus plan's new super-sized jumbo loans for buyers in high-cost housing markets have just begun hitting the marketplace.
Depending on the location of the property you want to buy or refinance, you can get an FHA-insured mortgage for as much as $729,750 with a 3 percent down payment. You can also apply for loans designated for funding by Fannie Mae and Freddie Mac up to that amount -- or 125 percent of your area's median home price -- but with larger down payments of at least 10 percent.
The new jumbos are intended to break up a logjam in the capital markets: Last August, global investors began bailing out of American mortgage bonds as fears about losses and write-downs spread from the subprime sector into other home-loan categories. Jumbo loans traditionally were viewed as slightly higher risk than the "conforming" loans up to $417,000 that were bought and securitized by congressionally chartered Fannie Mae and Freddie Mac.
But as the capital markets seized up, money for jumbos virtually disappeared. Interest rates soared to 9 percent and 10 percent in some cases -- causing problems for buyers and refinancers in California, New England, the mid-Atlantic states and parts of Florida, where high home prices require giant mortgage money.
To free up the flow of capital in these areas -- and to help financially stressed owners find affordable fixed-rate refinancings -- the stimulus legislation authorized new jumbo programs through Fannie Mae, Freddie Mac and the Federal Housing Administration through Dec. 31.
Without congressional action, the limits will drop back to $417,000 for Fannie and Freddie, and to $362,790 for FHA, beginning New Year's Day. In the meantime, there should be plenty of jumbo mortgage money available to anyone who can afford it.
But don't expect eligibility standards to be as generous as you can find in the under-$417,000 segment of the market. For example, in the guidelines for what Fannie Mae calls its new "jumbo conforming" program, the company will, beginning April 1, purchase fixed-rate mortgages up to $729,750, but only with the following conditions:
Minimum down payment of 10 percent.
Minimum FICO credit score of 700 for any loan with less than a 20 percent down payment. "Nontraditional" credit histories as alternatives to FICOs are not permitted as in other programs.
Minimum 40 percent down payment and 660 FICO for second homes and investor properties.
No balloon or negative-amortization payment terms allowed.
Household debt-to-income ratios cannot exceed 45 percent.
Freddie Mac announced similar standards, but wants minimum 700 FICO scores on any loan with less than 25 percent down.
Don't expect interest rates on the new super-sized conforming jumbos to be anywhere near competitive with smaller mortgages, either. Besides higher base rates, there are add-on charges in "declining" markets that can push final note rates beyond 7 1/2 percent in some cases. Many areas tagged as declining are in the former housing boom markets in California and the Eastern seaboard where jumbos are most common, and most needed.
For example, in Naples, Fla., the first batch of conforming jumbos available in late March came with base rates of 6 7/8 percent, according to brokers, but with the declining market and other adjustments, the final rate to some borrowers came to 7 7/8 percent.
William Dukes, senior loan officer for Summit Home Mortgage Inc. in Naples, said that a local borrower with a high FICO score, a 20 percent down payment and solid income and assets could get a $400,000 first mortgage at a fixed 5 5/8 percent. But the same applicant seeking a new $500,000 Fannie Mae/Freddie Mac conforming jumbo would pay well over 7 percent after add-ons.
Dukes said the rates on the new jumbos "are surprisingly high" compared with loans under $417,000. Traditionally the spread between conventional loan rates and jumbos was about half of a percentage point.
"I don't know what [Congress] is really accomplishing here," he said.
Paul Skeens, principal broker at Carteret Mortgage Corp. in Waldorf, Md., disagreed, arguing that some pricing on the new jumbos is attractive.
"You can buy a $700,000 house with 3 percent down with a [30-year-fixed] rate of 6 1/2 percent right now" in the Washington area, Skeens said, "and that is really an amazing deal."