Jumbo rates below 6%

(*edited from original post…)
Interest rates on jumbo loans over $729,750 are down from well above 7% in late 2008 to an average of 5.9% in mid-March, signifying a possible return to lending fundamentals in high-cost areas as jumbo mortgage rates are within 1 percentage point of standard prime loans.

During the height of the market, between 2005 and 2006, jumbo loan interest rates were typically a quarter of a point higher than standard conforming loans. Due to the foreclosure meltdown, the interest rate spread between a standard and a jumbo loan expanded to about 1.7 percentage points in early 2009 as lenders were reluctant to issue high-risk loans.

Down payment requirements have also been relaxed. The average down payment requirement for jumbo loans last year was 25-35%. Some larger lenders are now requiring only 20% on loans under a million.

However, if you are purchasing a property with a loan for over a million dollars, still expect a 25-35% downpayment and two appraisals will be needed. Most purchasers on the high end end up going with Hybrid ARM’s and face heavy scrutiny from the banks. The environment is better for purchasers than it was last year but still a very tough process to get through.

As the Fed begins withdrawing its support of the mortgage loan market this month, rates may creep back up but expect them to stay around the 6% mark for the next few months.

Though the banks are finally working with jumbo borrowers, please keep in mind the delinquency rate for California jumbo loans has shot up from 4.1% to 11.3% in the past year.

The increased delinquency rate for jumbo loans is no surprise. Many expensive homes were bought with adjustable rate mortgages (ARMs) in 2005-2006. The majority of the popular 5-year ARM’s are adjusting upward with the peak between now and 2011.