Cutting Rates On Jumbo Loans

From the WSJ:

Executives of Fannie Mae and Freddie Mac told Congress they are finally bringing down interest rates on some "jumbo" mortgages.

Jumbo mortgages are those larger than the normal limit — currently $417,000 — on loans that can be sold to Fannie and Freddie, government-sponsored companies that provide the bulk of funding for U.S. home loans. Rates on such loans soared in mid-2007 as rising defaults caused investors to shun loans other than those backed by Fannie, Freddie or the Federal Housing Administration. Although the ceiling is higher, loans of more than $417,000 continue to be significantly more expensive. (The rates are for loans on which borrowers don’t pay any "points," or fees, to reduce the rate.) In March, the larger loans carried rates as much as about 1.30 points more.

Fannie and Freddie said their more aggressive purchases of jumbo loans in recent weeks have brought rates down.

Hudson City Savings Bank, Paramus, N.J., a unit of Hudson City Bancorp Inc. that makes mortgage loans in the Northeast, is offering a 6.25% rate on jumbo loans, compared with 6% for smaller ones. Hudson retains the loans rather than selling them to investors like Fannie or Freddie.

From the Washington Post:

WASHINGTON — Could the controversial mortgage industry practice of listing hundreds of local real estate markets as "declining" — and restricting lending through higher down payments or credit scores — be scrapped?

The two biggest players in the home mortgage field, Fannie Mae and Freddie Mac, did precisely that on Friday.

Reversing its policy of penalizing buyers in troubled real estate markets with 5 percent higher down payments, Fannie switched to a nationally uniform policy of charging borrowers the same minimum down payments irrespective of location. A spokesman for Freddie Mac, Brad German, said his company would be "suspending" its declining markets policy indefinitely, as well.

Starting June 1, mortgage applicants who are underwritten by Fannie Mae’s automated system online will qualify for 3 percent minimum down payments, wherever the property is located. Under Fannie’s prior system, applicants buying houses in designated declining markets had to contribute 5 percent extra in upfront equity compared with borrowers in nondeclining areas.

Freddie’s policy also required 5 percent higher equity contributions up front.

That change was welcomed by national real estate and housing groups. Dick Gaylord, president of the National Association of Realtors, said the termination of a policy that "stigmatized" certain communities will "help stabilize the credit markets."

Private mortgage insurers, who provide loss protection to lenders on loans with low down payments, have virtually all adopted highly restrictive policies affecting ZIP codes or metropolitan areas they designate as distressed or declining.

Fannie Mae’s and Freddie Mac’s policy switch should open the door to some additional low-down-payment mortgages — and home sales — in local areas once tagged as declining.

About Luke Ford

Raised a Seventh-Day Adventist at Avondale College in Australia, Luke Ford moved to California in 1977. He graduated from Placer High School in 1984, reported the news at KAHI/KHYL radio for three years, attended Sierra College and UCLA, was largely bedridden by Chronic Fatigue Syndrome for six years, and converted to Judaism in 1993. From 1997-2007, Luke made his living from blogging. Living by Beverly Hills (Alexander90210.com), he now teaches the Alexander Technique (moving the way the body likes to move). Lessons cost $100 each and last about 45 minutes. In 2011, Luke completed a three-year teaching course at the Alexander Training Institute of Los Angeles. His personal Alexander Technique website is Alexander90210.com. Luke is the author of five books, including: » The Producers: Profiles in Frustration » Yesterday’s News Tomorrow: Inside American Jewish Journalism
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