Jumbo Lenders Suffer From Bad Marketing (And You Pay Higher Rates Because Of It)

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Author’s Note: Click here for a complete loan limit list.

Why Jumbo Mortgages Went Away

In 2007 and 2008, mortgage markets were failing. Badly.

To limit long-term damage, private-sector lenders chose to dam the funding waters, effectively closing down lending for anyone whose mortgage didn’t meet Fannie Mae standards.

If the government didn’t back it, the lenders didn’t lend it.

When the shift occurred, “jumbo” homeowners found themselves all wet. Regardless of income, assets or credit, loan applications for anything above the conforming loan limit of 7,000 were turned away at the door.

Until 2009.

New Loan Limits For “High-Cost” Areas

As part of the 2009 American Recovery and Reinvestment Act, to stimulate housing and give relief to certain homeowners, Congress increased the conforming mortgage loan limit in certain “high cost” parts of the country.

The 7,000 conforming loan limit is no longer one-size-fits-all. It can range as high as 9,750 depending on where you live. In other words, certain jumbo homeowners get non-jumbo pricing.

The jumbo mortgage stimulus is good through 2011.

Do You Live In A High Cost Area?

To be classified as “high-cost”, an area’s median home price must exceed 5,000, with the government’s definition of “area” tied to MSAs and, specifically, not to cities. Based on this grouping, just 324 areas qualify nationwide.

Click here for a complete loan limit list by area.

Within these markets, the stimulus-led conforming loan limit is raised to 115% of the region’s median home price.

In Fairfax, Virginia, and Loudoun County, therefore, conforming loan limits are 9,750 — the maximum allowable by law. In Athens, Ohio, home of Ohio University, by contrast, the loan limit is 2,500.

Neither Chicago nor Cincinnati made the list.

In both cities, because of how MSAs are defined, and because of the relative parity between lower-cost homes andhigher-cost ones, median prices are too low to make jumbo-conforming lending possible.

The following “pricey” areas, therefore, are stuck with the 7,000 loan limit:

• Lake County, Illinois
• Indian Hill, Cincinnati, Ohio
• Lincoln Park, Chicago, Illinois
• Hyde Park, Cincinnati, Ohio
• Streeterville, Chicago, Illinois

For these town residents, a 7,000 mortgage doesn’t get the job done.  Homes routinely sell for million-plus and there aren’t a lot of  homeowners that want to make the downpayment necessary to get to conforming loan sizes. Because loan limits are too small, homeowners are forced to look for other options.

With respect to those “other options”, unfortunately, the pricing can get ugly.

Where To Find Your Jumbo Mortgage Lender

If you’ve been shopping for jumbo mortgages at your bank, you already know — jumbo mortgages can be downright expensive.  The mortgage rates are high, the lender fees are high, and banks are non-apologetic their product mix.

There is another way to get it done, though.

See, the terms “jumbo” and “super jumbo” — these are words for a Conforming Mortgage World, as if Fannie Mae and Freddie Mac were the only games in town.  They’re not.  On the contrary, if you can find your way off the beaten mortgage path, you’ll discover a whole world of lenders who can help.

These little-known banks are “niche lenders”; the banks of Main Street, America.

Different from Too-Big-To-Fail Banks, the smaller ones prefer to keep their loans on their books.  Without an “end investor”, per se, they can underwrite to common sense. 7,000 becomes an arbitrary number.

Additionally, Main Street lenders do things that Fannie Mae or lenders making FHA home loans wouldn’t touch:

• PMI not required above 80% loan-to-value
• Cash due at closing can be a 100% gift
• Closing within a LLC or other entity is permitted

Plus, the rates are amazing.

Apply For A Jumbo Mortgage

Jumbo mortgage lenders suffer from bad marketing. There’s lots of them out there, but you’ll never find them because they’re mostly low-tech and their websites are garbage. That’s where I come in.

I work for a bank that makes jumbo mortgage loans with wide-ranging eligibility criteria.

If you’re having trouble finding a bank to service your “large loan” or just want a second opinion, and include some bullet points from your scenario. I’ll put together some basic rates and pricing for you and we can take it from there.

Dan Green is an active loan officer. Email or call 513-443-2020. Dan is on Twitter at @mortgagereports.