Jumbo/Non-Conforming - The Mortgage Porter

Waiting for the Jumbo Shoe to Drop

September 2, 2009 by Rhonda Porter 3 Comments

The Government has reached out to home owners who have conforming or FHA financing. However if your mortgage is a jumbo (aka non-conforming); your options for refinancing are few…there is no HARP for you. Many home buyers used various types of mortgages to buy their dream or "move-up" homes a few years back during the loosey goosey days of mortgages and now are either dealing with or waiting for these large mortgages to adjust.

Recently I've added Jumbo mortgages back to my Friday rate quotes, including fixed and a couple of adjustable rates mortgages. The difference now is that people must actually qualify for their mortgage. No more stated income or qualifying at a teaser low interest only payment. And as I mentioned, there is no assistance for you unless your mortgage servicer is willing to do a modification.

As Diana Olick's video above addresses, banks have a large "bucket" of mortgages that are getting ready to go into foreclosure. Many are jumbos. Even if Obama's programs for loan modifications and refinances reached out to the high end home owner in need of a lower mortgage payment; if the home owner has lost their job, odds are against them.

The timing of no available mortgages for the high-end home owner couldn't be worse. For the past few years, the pricing was not attractive for jumbos. Someone with an option ARM, for example, would not want to nor probably qualify for the much higher rates if they wanted a more secure fixed rate product. This also prevents the jumbo home owner from being able to sell their home should they decide they can no longer afford it. Their home's potential prospects are limited to those with significant cash down payment to have a "high balance" loan limit (currently in the Seattle area, the 2009 high balance loan limit is $567,500).

The Seattle-Bellevue area also has a significant amount of high end homes. How many are waiting to go into foreclosure? This is one sector of the market who odds are will not see a bail out.

Filed Under: Jumbo/Non-Conforming

I Love Checking Out ARMs: Reviewing An Existing Mortgage

April 15, 2008 by Rhonda Porter 1 Comment

Recently a friend approached me confessing to having one of those "awful adjustable mortgages"…she thinks she needs to refinance and take advantage of today’s lower rates. Before assuming that someone "needs" to refinance, I like to review their current mortgage and what their financial goals are. Sometimes, people do not need to refinance…they just need to understand their mortgage terms.

Current Mortgage: P&I Payment $3,330 (original balance $520,000).

7/1 Adjustable Rate Mortgage: Note Rate 6.625%
Caps: 2/2/5
Margin: 2.25
Index: 1 Year LIBOR (currently 2.637% as of this the date of this post).

There is approx. 65 months remaining with the fixed period rate of 6.625% before the mortgage adjusts. When the mortgage adjusts, the new rate will be 2.25% plus the current 1 year LIBOR rate EXCEPT the rate will be no lower than 4.625% and no higher than 8.625% due to the 2% adjustment cap.

Best case scenario at first adjustment date with current mortgage:

Rate: 4.625% with principal and interest payments for 12 months of $2,780. Note: If the mortgage was adjusting today, the rate would be closer to the best case scenario at 4.875% (2.25% plus 2.637% = 4.887% rounded to the nearest 0.125%). Alas…they have 65 more months before knowing what the going rate for the 1 Year LIBOR will be.

Worse case scenario at first adjustment date with current mortgage:

Rate: 8.625% with principal and interest payments for 12 months of $3,937.

Possible scenarios that I suggested:

Refinancing into a conforming-jumbo mortgage 30 year fixed at 6.375%. This would provide a principal and interest payment of $3,232. With closing costs at $2900, they will break even on this scenario in 30 months. From 30 months (the break even point) to when the fixed period of the ARM is over, the savings based on the monthly payment would be $3430.

Restructuring the existing mortgage into two mortgages with a conforming first at $417,000 at 5.875% and second mortgage paying off the balance (they can opt for a fixed second or a HELOC). With a principal and interest payments of $3,194 and closing costs of $3,200; it will take 24 months to break even on this scenario. From 24 months to when the fixed period of the ARM is over, the savings based on the difference between the monthly payments would be $5,576.

This chart, which I created utilizing The Mortgage Coach, is factoring in the 2.25% margin to the LIBOR rate back to January 1999. You can see there is a significant range with the rate. Home owners with ARMs based on the LIBOR rate from 2002 to 2004 were probably grinning from ear to ear (depending on what their margin was) when you see what their rate was compared to the 30 year fixed. Timing is everything with an adjustable rate mortgage.

What ever the home owner decides to do is completely up to them. Of course one of their options is to not refinance and wait to see what the new rate (LIBOR) will be in 65 months. If they wound up with a "best case scenario" new payment, it would be pretty sweet however the cost of paying the higher payment for 65 month and we don’t know what the index will be at the date of adjustment. Understanding your mortgage and knowing your available options just starts with contacting your local Mortgage Professional.

By the way, if you are a Washington State home owner who has not heard from your loan originator lately or if you would like me to adopt your mortgage, please contact me. Many LO’s have left the industry or do not provide service once the loan has closed. I’m happy to review your ARM (or fixed rate mortgage) without any obligation to refinance.

Filed Under: Mortgage Programs, Jumbo/Non-Conforming, Refinance

Fannie Mae Clarifies Conforming Jumbo Guideline for Refi’s

April 7, 2008 by Rhonda Porter Leave a Comment

Great news! I just received a memo from Fannie Mae clarifying that they will now allow purchase money second mortgages to be included in a conforming-jumbo refinance and to be treated as "limited cash out". Previously, purchase money second mortgages (piggy back mortgages used for financing when you purchased your home) were going to be considered "cash out" and not allowed with the temporary conforming jumbos.

In a nutshell, this means that if you have combined loan amounts up to $567,500 for King, Pierce or Snohomish counties, and the mortgages being paid off are from when you purchased your home, this is now a doable refinance utilizing a conforming jumbo mortgage (subject to credit scores, loan to value, documentation…etc.).

A little easing will help many home owners who were hoping to consolidate their mortgages.

Filed Under: Jumbo/Non-Conforming, Refinance

? of the Day: Could you tell me when the increase in conforming loan limits will go into effect?

March 19, 2008 by Rhonda Porter Leave a Comment

I was emailed this question today:

Could you tell me when the increase in conforming loan limits will go into effect?

Believe it or not, the temporary increase in conforming loan limits is in effect. In fact, it’s retro-active to July 2007. Why? This is so that Fannie and Freddie can provide some relief to Wall Street by being able to purchase loans over the true conforming limit of $417,000. Investors have lost their appetite for jumbo mortgages, regardless of how great the borrower is, these loans did not have Fannie or Freddie’s backing. Now that they will, we should hopefully see some relief as far as lower rates from lenders for jumbo mortgages. The higher rates we have been seeing lately with non-conforming (jumbo) mortgages was to try to sweeten the pot on Wall Street.

Lenders are being slow coming out with their pricing. The first one I wrote about came out swinging with some very high "hits" to price. I’m now beginning to see others just starting to appear with better pricing. As more lenders enter the conforming-jumbo and fha-jumbo markets (i.e. competition), we may see rates improve.

Stay tuned! I’ll be posting rates tomorrow.

Filed Under: Jumbo/Non-Conforming, Mortgage

New Conforming Loan Limit Won’t Help Refi’s w/2nds…FHA May Save the Day

March 13, 2008 by Rhonda Porter 2 Comments

Fannie Mae’s underwriting guidelines for the temporary conforming loan limits have been released and it looks like the new loan amounts are not going to be as helpful as many had hoped. The new guidelines for loan amounts between $417,001 – $567,500 in King, Snohomish and Pierce Counties are far more strict.

The biggest whammy is that if you were hoping to combine your first and second mortgage (or heloc) into one new conforming-jumbo mortgage, you’re out of luck. Fannie is not allowing any "cash out" refinances. This means that even if you were just paying off the two mortgages and not receiving a nickle back at closing–it’s not going to fly.

You must have a minimum of 660 credit scores for a fixed rate purchase for a LTV of 80% or less for a purchase using a fixed or adjustable rate.

Limited cash out refinances are allowed up to 75% loan to value with a minimum 660 credit score. Limited cash-out means that you are allowed to roll in the closing costs to the refinance and receive no more than $2000 cash back at closing (no second mortgages/helocs can be included in the refinance).

Update: it appears that Freddie Mac will allow cash out refinances up to a 75% loan to value with a 720 minimum credit score.

Adjustable rate mortgages are qualified at the fully amortized PITI at the higher of the note rate or fully indexed rate (worse case rate).

Be prepared for a "full doc" mortgage. There is no "stated income" allowed. You will also need two months of reserves (PITI) and are limited to a 45% DTI (debt to income) ratio.

You can only have four financed properties, including your principal residence.

On Monday, I believe lenders will finally unveil pricing…which again is said to not be as exciting as consumers had hoped. I’m hearing that the rates will fall between current Jumbo and conforming.

Rumor has it that the FHA-jumbo will be more friendly to "jumbo" homeowners…if they can get over paying the upfront MIP (1.5% of your loan amount) and monthly mortgage insurance (0.5% of your loan amount/12 months). For example, on a $500,000 loan amount, the upfront MIP would be $7500 (typically financed into the loan) plus monthly mortgage insurance in the amount of $208.33…even if you have an 80% loan to value. We’ll just have to wait and see a couple more days.

Remember, these loan limits only last through December 31, 2008.

More to follow.

Filed Under: Home Equity Loans & Second Mortgages, Jumbo/Non-Conforming, Refinance, Residential Purchase