By Robert Freedman, senior editor, REALTOR® Magazine
It’s still early but there are signs the availability of jumbo financing might be improving—although underwriting standards probably won’t ease any time soon. That means the days of creditworthy borrowers having a tough time getting financing for an amount over the conforming loan limit might be ending but they’ll still have to come up with a significant down payment and be prepared to show lots of documentation, like three years worth of tax returns instead of the customary two.
NAR Chief Economist Lawrence Yun says lenders are slowly getting back into the game because the climate of dread is lifting: Wall Street analysts and business executives have recalibrated their performance scenarios to reflect the greatly improved conditions among lower-priced homes (thanks to the home buyer tax credit and steeply discounted pricing). That in turn is creating a virtuous cycle as the improved scenarios help relax concerns over the economy, pushing up equities, which in turn creates the wealth that further increases confidence.
In other words, the improving lower-end housing market and the rising stock market are helping to push big financial services companies back into the business of loaning money rather than hoarding cash. As a result, it’s not just safe agency loans that lenders are willing to make (Fannie, Freddie and FHA) but also non-conforming jumbo loans. That helps further the narrowing of the interest rate spread between comforming and non-conforming loans.
I spoke with Las Vegas luxury home sales specialist Kenneth Lowman yesterday and he says the jumbo market has a long way to go before it’s back to where it needs to be, but, importantly, big loans are being made again. Earlier this year, that wasn’t so clear-cut.
“We recenty did a jumbo loan in record time,” he says. It was for a home listed at a couple of million dollars—obviously not an everyday deal for most salespeople—but it closed in just 22 days. Six months ago, he says, that never would have happened.
Yun predicts that financing for jumbo loans, second homes, and commercial real estate will show marked improvement by the middle of 2010. By late 2011 or early 2012, we might even see more non-agency, private-label loans securitized by Wall Street.
Yet the mortgage market by then will surely be different than it was during the housing boom, and in a good way. Buyers will be far more careful about staying within budget and lenders will be far more cautious about making loans to buyers who aren’t staying within budget.
Yet there remains a big concern: inflation. Although prices remain stable because of continuing slack in the economy (high unemployment, excess business capacity), once the enconomy starts growing again federal budget deficits will create inflationary pressure. The main way to head that off, says Yun, is for the government to produce a credible plan for getting the deficit under control.
Hear some more from Yun in an audio podcast he recorded earlier this week, mainly to talk about the need for Congress to extend the tax credit, and in his latest video interview, below, in which he talks about home-sale trends.