Jumbo Loans – Making a Comeback!

After the real-estate crash a few years back jumbo & especially super-jumbo loans became almost as rare and hard to find as the Do-Do bird.

That’s not a good thing if your loan size is over the conforming-loan limit of $417,000. What caused the jumbo market to dry-up and why is it making a comeback?

When the real-estate market crashed the credit-markets got decimated. Up until that time banks making jumbo & super-jumbo loans were able to sell of these loans as mortgage-backed securities in secondary markets. With the crash, the secondary markets vanished as no-one wanted to buy jumbo and super jumbo mortgage-backed securities.

Really that’s because a lot of the bad loans were originated in markets like California, Florida, Arizona, and Nevada where most loans are jumbo & super jumbo.

In addition, with all the losses most banks balance sheets were a disaster and they were not in a position to hold them on their books.  When there is no secondary market banks have to hold the loans in their own portfolio.

Finally, it was the risk factor. Banks would rather do conforming loans that they could sell off to Fannie-Mae & Freddie-Mac than do larger loans they had to hold on their weak balance sheets.

So what’s changed?

Though the credit-markets have opened up somewhat there is still no secondary market for jumbo & super jumbo loans. So why are lenders getting back into the jumbo & super-jumbo arena?

Improved balance sheets coupled with identifying where the bad loans were and restructuring their credit profiles of who can qualify for a jumbo or super-jumbo loan.

More investors offering the jumbo & super-jumbo loan amounts though expect the greater the loan size the more down-payment will be required. In addition, spotless credit, verifiable income i.e., no stated -income and plenty of liquid assets as reserves.

Hopefully things will continue to improve.

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