After hastily eliminating jumbo loans a couple of weeks ago due to a lack of buyer interest on the secondary market IndyMac announced today a return of the loan product. Well, a return of sorts. Jumbo loans will now require full income documentation and a minimum borrower equity position of 15% in the property. IndyMac is planning on holding those loans in its portfolios until secondary market interest returns. While its a welcome development to the jumbo market - it still is vastly restricted from the standards available to borrowers only 4 weeks ago.
One has to wonder though, is IndyMac gambling with its liquidity in an attempt to win business from other competitors? If cash is currently king during this credit crunch, why is IndyMac willing to tie up a large portion of its available cash in jumbo mortgages?
Jumbo borrowers, even those with prime credit, are severely restricted as of late as the secondary market has lost all appetite for jumbo loans (loans above Fannie Mae and Freddie Mac loan limit of $417,000). In my home state of California, jumbo loan borrowers’ jaws hit the floor when they hear the current rates available for their loans.
For example a person looking for a $750,000 loan with a current interest rate in the mid 6’s is stunned to learn that the best they can do is in the mid 8’s. The steep increase in rate has eliminated all jumbo loan refinance business and left some jumbo homeowners in a precarious position. Recently market consensus has centered around the idea of two housing markets: excellent performance of the high-end real estate market in defiance of the market forces pulling apart lower-end housing. This paradigm stands to crumble if jumbo loan availability and rates come back down. Adjustable rate mortgage resets are painful for people with loans of $200,000; imagine a reset when your loan is $900,000. The money jump is huge and should spread the foreclosure wildfire to the high-end market in short order.
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[Source: Blown Mortgage]
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