Jumbo Loans are Back - Somewhat

It seems that those who have money are again looking at putting some of it into real estate. Pricey homes are getting a lot of attention, and prices are rising right along with that attention and greater sales volume.

A survey of upper end areas across the country showed that sales of properties between $750,000 and $1 million are up 38.7 percent over a year ago. Properties over $1 million in value are selling at a rate 25.7 percent higher year-over-year. Part of this resurgence in luxury real estate sales volume is due to a return of the jumbo mortgage, those loans over $417,000 and too big to qualify for purchase by Fannie Mae and Freddie Mac.

Jumbo loans almost disappeared entirely from 2008 until now. The private secondary market dried up during the housing and credit crunch, and it appears there may be some of these mortgages returning. The mortgage markets have become more stable, so jumbo loans are in comeback mode. However, lenders are only offering them to the most highly qualified borrowers. With lenders enjoying large savings deposits at low cost due to low savings interest rates, they see jumbo loans to the best qualified borrowers as safe and profitable. Secondary market investors are being drawn back into the markets, as they see these high-yielding loans as enticing after years of absence.

With jumbo rates currently not that much higher than qualifying conventional mortgages, lenders and investors are back in the game and analysts expect jumbo loans to fare better in 2013 than smaller mortgages for profit and increased activity. Though things are looking better, some observers are concerned that the jumbo loan market cannot return to its past size without a full recovery in the secondary market.

For the four weeks ending February 22nd, new jumbo activity was up 60 percent from the same period a year ago according to Mortgage Daily. Even though volume is increasing, it’s far below 2007 peak levels. Though smaller investors aren’t normally involved in many jumbo loan deals, this growth in activity could bode well for all real estate investment funding.