Mortgages: The Raw Data

You are giving 7.375% on a Jumbo 5/1 ARM @ 0 points? The current rate is below 6% for that jumbo in Manhattan according to Manhattan Mortgage Co. Even the 30 year fixed is less than 7%.

Welcome MortgageMan! Noah told me you'd be posting soon.

I'm curious - why isn't there a secondary market for jumbo mortgages? Do they default more often than conventional mortgages? If not, it seems like this is an untapped market. I don't have any real data, but my very naive hunch is that larger loans are made to richer people, who are less likely to default, so the loans themselves are safer?

The temporarily increased conforming limit - thoughts on that? Do you think the raised limit might become permanent?

If people are unable to secure loans, it appears that Manhattan apartment prices must fall a lot further. Any opinions?

Interesting on the jumbo 5/1 currently being at 7%+.

Is this a recent phenomonen? I closed on a $1mm+ loan on a 5/1 IO ARM at 5.75% with 0 points in the middle of May. Was I just particularly lucky or did rates move so far in the past 3 months?

In my mind, this is a very important statistic for buyers and something which clearly impacts the buy/rent equation significantly. (The service cost on the mortgage has increased 28% all other things being equal). On a sample size of one, I would be choosing to rent if I was being offered 7.375% and not 5.75%.

Great post! very refreshing to see 'the facts' posted by a loan professional without bias

Keep up the great work!

anon - yes rates did move up in past 3 months, rather significantly. Mortgage markets were pretty bad in July. I think they eased a bit though in past week or two

mortgage man,

Explain the phenomena that is me having locked a 6.0% 611 amount, 90 ltv loan on non-warrantable new construction condo, paying a point.

When I was shopping around I wasn't able to find anything in this neighborhood. Is this too good to be true. Can they screw me once they send me to underwriting? Meaning can they say "wups, sorry, underwriting can now only offer you 7%+ now."

Thanks.

Steve:

Thanks for the warm welcome.

To answer your question we really need to take a historical approach.

Before President Bush signed the stimulus plan in to effect allowing for an increased limit to conforming mortgages, anything over a $417,000 loan amount was considered jumbo territory.

That said, unlike conforming mortgages (which are sold off to Fannie Mae and Freddie Mac), jumbo loans are underwritten using each financial institution's own underwriting guidelines. With loans defaulting all over the place, investors just do not want to invest in a batch of loans that were not securitized by the government; mainly because they do not trust that bank's underwriting system. By taking these actions, investors are not maintaining a secondary market for Jumbo loans, forcing most banks to hold these loans on their balance sheets. This is not good because it creates a higher rate for new borrowers, because the banks must charge higher interest rates to make money off the loans.

As far as the increased loan limits, I think it’s a great concept. Now with the restrictions lifted allowing financing on CO-OP's and 2 Family Homes, I think it creates a lot of potential for more financing and more options to home buyers across the nation, thus spurring a buyer’s economy. I hope that they do make it a permanent increase, however, realistically I just don't know if Fannie Mae or Freddie Mac can keep their appetite for the massive influx of mortgages. And even if they do, they will have no choice but to charge higher premiums to the borrowers.

k91:

Before I answer your question, can you please let me know when you locked in?

Thanks.

uwsider:

Thank you! I look forward to providing more unbiased info for you to read and will update as soon as I can.

Mortgage man,

I locked in middle July, the week after the gse 's exploded. Very best 30 Years went from 6 and eighthish to 6 and half plus. 5/1's went from 5.85ish to 6.3plus for what are called conformig jumbos right? Basically most guys I was shopping had rate sheets no where near 6 or below so I locked with this guy (I was already in contract).

Anyway, I am just wondering the program he was pricing. Apparateny thewarrantable issue is a non factor in this current program as well as my high LTV (relatively speaking). Wife and I are 750+ fico though. My thoughts are that I ran into a smaller banks flush with capital, for whatever reason, and that i was able to best the bigger guys?

Even though I am locked, I am worried about a loophole that would allow them to not honor the lock, and to bump me up to more a more market rate. Insight thoughts appreciated.

And with regard to having a professional speak transparently about an otherwise opaque industry/market, I think is a great idea. Hopefully mortageg man bcomes a regular. As far as housig markets, especially new yorks, mortgage rates and insight thereto is KEY!

Mortgage Man - Welcome and thanks for your answer to Steve's first great question. Not sure if it answers his specific point which I will expand to mean: Why isn't some entity out there only securitizing and making a market in Manhattan jumbo mortgages since, like Steve says, they would presumably be "safer" debtors?

you guys see this?

FREDDIE TO STOP BUYING NYS SUBPRIME MORTGAGES

http://online.wsj.com/article/SB121854958232433367.html

Not that we have such subprime exposure, but damn, thats a pretty specific kick in the a$$

Bryan, Steve:

Great question. So sorry for the misunderstanding.

Here is my opinion: It is true that Jumbo loans do require more affluent buyers. Better credit scores, lower Loan to Value ratios, lower Debt to Income ratios, etc., thus making the application much more "safer" or risk adverse.

However, we must also look at this scenario from a default perspective.

Since jumbo loans carry higher loan amounts, I think that from an investors' risk perspective, the loan doesn't look so favorable. For example if someone was to own a condo on the UES worth $3MM and carry a 80% financing mortgage of $2.4MM, it would be extremely hard for the financial institution to sell the asset and make their money back should the borrower default. Anything in this world could happen and this credit risk has to be built in.

The above is just a sample of the risk involved with Jumbo loans. There is also the risk that a majority of jumbo loans, especially right now, are ARM's and if the payment should jump once the fixed rate expires, will the borrower be able to repay the loan?

Also, as I mentioned before, there is no appetite for jumbo loans right now and not many companies want them on their balance sheets. So I do not think that at this point in time a company would want to keep a whole bunch of risky assets in their portfolio.

Thoughts?

In a phrase Mortgagman - banks are HOARDING CASH! Capital raising is NOT over, more write downs coming in alt-a and prime write downs, and dividend cuts highly likely.

Banks need to hoard cash and being lenient for jumbo's right now is not really the answer to their problems.

My two cents

GUTS PLEASE DO NOT FORGET TO TYPE IN THE "nyc" SECURITY CODE FOR THESE COMMENTS.

I USUALLY DONT CHECK JUNK FOLDER, BUT DID JUST NOT AND FOUND 4 COMMENTS ALREADY THAT RESULTED FROM LACK OF TYPING IN SECURITY CODE. MAKE SURE ITS FILLED IN IF YOU WANT COMMENT TO APPEAR. ITS AUTOMATED, AND I DO NOT APPROVE COMMENTS ANYMORE.

THANKS

John:

As of today I was closer to 6.875% on a 5/1 ARM Jumbo @ 0 points.

Manhattan Mortgage is a broker and usually facilitates their loans through another lender. If they are in fact quoting below 6.00% on that product, that is wonderful yet very rare in the Manhattan area. In fact, many major banks are no longer allowing financing of Jumbo ARM's through the broker channel. They are most likely getting that rate through a small lender, I.E. Astoria Federal, Hudson City, etc.

If I was you I would be very cautious when it comes to closing, I have seen many cases where small banks cannot fund the loan at closing or pull their commitments last second.

I am a loan officer, not broker, so I can only quote rates for the bank that I work for.

On The Fence:

Even though banks are offering higher rates for Jumbo products and making it seem as if they do not want them on their balance sheets, they are still offering and securing them - just for a higher price.

The Manhattan market is known to be an anomally to the current real estate conditions and I do not think that apartment prices will fall drastically just because rates are high.

Are 90% jumbo LTV loans still available? closing on $1.625mm condo soon and worried that 90% (80/10/10) won't be an option at that level.

If I'm not sensitive to interest rates, what is the max LTV available today?

JumboBorrower:

90% loans are still available, however I have not heard of any financial institution offer a 80/10/10 in a long time. Especially for jumbo loans.

Most banks will still be able to do a 90% financing loan in Manhattan, but it will be one big loan with PMI.

Also, please use the code "nyc" when posting next time as the comment you posted went into the "junk" folder.

Hope this helps. Thanks!

MM
This is great that you're here offering unbiased talk .

To get a conforming fixed mtg loan these days where should one go. Any recommendations?

DW

DW:

Thank you! I look forward to providing more info as I go along for all you guys to enjoy.

As far as the recommendation for a lender, I will tell you this: There are approximatley 7 major banks on every 5 blocks, in the entire Manhattan area, all competing for YOUR business. I am sure all of them will be in the same vicinity as far as rate goes. The question is, who do you trust?

Here is my opinion: just stay away from the little banks. They are very volatile and may pull their commitments at any time during the origination process.

My experience (I've taken 4 mortgages in the last 15 years) has been that the smaller lenders that are available through the mortgage brokers are far more flexible (both during the application process as well as at closing time) than the 800 lb gorillas. It's no wonder that the big banks are getting out of the lending business; they obviously can't compete on either price or service with the mortgage brokers. I've got perfect credit and the process that I've gone through with Citibank in the past few months has been worse than root canal.

Welcome MortgageMan!

Great post and very informative, look forward to hearing more from you.

we have a 5/1 jumbo arm locked in through a mortgage broker, the loan comes from astoria bank.
we are putting 40% down and have been cleared by bank and have a closing set up already. can astoria bank pull out at this point?

with 40% down? I doubt they will unless you are still stretching to make payments and they are really undercapitalized

Gorod:

I agree with Noah.

Having a 60% Loan to Value ratio and assuming that you have excellent income, asset requirements, and credit score, I do not see why Astoria would pull back their commitment.

Unless they are very illiquid and simply cannot fund the loan.

Best of luck at the closing and congrats on your new purchase!

MM & Noah,

Informative, however, how can you promote this flaccid understanding of our current market conditions. Why don't, we, offer a clear reality.

Lets start with the Brokers. They are being shut down because the major banks are shuttering their correspondent/wholesale lending windows. This in turn drives them to the regionals banks, like the aforementioned. These regional stand on the pillars of their balance sheets, savings accounts, cds, and perhaps, brokered deposits like that of the Indymac and 10+ bank failures this year. The Fed has a black list of 90 banks that are near default and almost no one knows this.

A little history lesson for you all. The FDIC lost 10% of their capitalization when they replaced the lost capital in the checking and savings when the bailed out Indymac.

Ok so, where does this leave us. Brokers can only exist as far as they have a place to broker to. Regulation will soon be in place and this will force them to comply and license themselves. Frankly, most banks don't like brokers because they have no oversight i.e. are the most prone to fraud which results in default. They will struggle on but barely.

Banks. They cannot pull a commitment letter. A letter of commitment is legally binding. The only way they can pull a commitment letter is if they close down their lending department or close down entirely. In which case if a bank buys them, they then assume the liabilities and contracts of the previous bank.

Jumbo Loans: $729,750- $5,000,000. Hudson City, Astoria Federal, and First Republic all have the best rates in the Jumbo Arm market right now. Hands down. End of story. But they are at risk of default themselves. So act while you can if you need to.

Conforming loans: $1 - $729,750. 30 year fixed rates 80% LTV. All banks fall in at about 6.25%-6.75%. On any given day. Just keep an eye on the 10 Year T bill.

The 10 Year T bill or Treasury bill: Is a bond traded in the market. It is the bellwether for interest rate pricing for mortgage. It is good tool for any consumer. The real market that dictates pricing is the MBS market or Mortgage Backed Security market. Consumers don't have access to this but it is almost in lock step with the 10 year. So, for your purposes this is good enough.

Pricing: The 10 YT has floated between 3.2% - 4.2% all year. Obviously when this is lower, closer to 3.2 rates will be lower i.e. in the low 5% range on a 30 year fixed mortgage. Today, we are just below 4% and the rates are in the mid 6% range. This goes for all banks in the US. Simple as that.

And Noah. Banks are not hoarding cash. They are losing too much of it. They are trying to plug the holes in their balance sheets. The result of this is a lack of capital to lend. With increase demand rates will go up.

Bottom line. For everyone trying to pick the bottom in the NYC housing market. Has been kept up by investors and foreign borrowers. Knock, knock,... whose there? The bank. The bank who? Banks are not lending any money to you.

I think you mis-interpreted the context of how I said hoarding cash. I assume you read my site, so Ive been all over this credit crisis for over 13 months now. Banks balance sheets are toxic, write downs continue, spreading to higher quality assets, dividend are/have to be cut, lending is cut back, capital must be raised, and shares diluted if they sell more stock to raise money to meet capital requirements. That is what I meant. That is not an ideal environment for borrowers or banks which as you say, results in lack of capital to lend.

With increased demand, rates go up. You know what also makes rates go up? Risk aversion!