Jumbo Loans are making a comeback

Well, in part, they never left. They were fundable, just exorbitantly priced. That is changing. In case you missed it, here's what has happened.

Around the beginning of August, Investors who normally bought pools of Alt-A loans from lenders decided the risk wasn't worth the reward.

The loans they were buying were not Sub Prime, they were Alt-A which includes Jumbo Loans, Home Equity Loans, as well as higher quality Stated Income Loans. These investors simply stopped buying pools at competitive prices. Instead they offered the lenders drastically lowball offers on their pools.

That in turn threw some Lenders out of business and others scrambling for liquidity. Countrywide borrowed 11.5 Billion from lines of credit and then sold another 2 billion of stock to Bank America.

To simplify the mortgage securitization process think of it this way. Every lender needs to make new loans in order to stay in business. Servicing existing loans doesn't pay enough.

Imagine the Lender and their vault. There is a finite amount of cash in the vault. During the month the Lender lends as much as they can out of their vault. Pretty soon the vault is running empty. So the lender turns to the secondary mortgage market and sells the loans they have done to investors. By selling the loans, in return they fill their vault back up and then make more loans. Simple, eh?

The money the Lender receives from the investor is based on a number of different factors. Some are directly determined by the loans in the pool, others are external. Some outside factors might be the overall economic situation, or what other available investments they could buy instead. Inside the pool factors include how that particular pool is expected to perform, their credit score, their loan to value and so on.

Want to know a secret? Real interest rates for mortgages are not determined by the Feds, they are a direct result of this secondary mortgage market and how much they are willing to pay for these pools.

I received a call this morning from a contact I have at a large lender. She told me they had just arranged for the sale of a pool of Jumbo Loans to the secondary market and in doing so this was the first step in getting Jumbo Loans back on track.

I've been doing some extensive research since that call and created somewhat of a cheat sheet.

I do want to caution that this is current as of today, it could change tomorrow, and is only meant as a general guideline as to what is currently out there and Real. I have to emphasize the REAL aspect.

I cannot tell you how many emails, faxes, and phone calls I have gotten from Pseudo Jumbo Wholesale Reps pitching me everything they can in order to get my business. Many of them are using the same sales tactics a used car salesman would to get my loans into their system. The problem is that I know things they don't. I know people above them that they don't. I know the truth.

So here is, as of today August 29th, 2007, a general guideline as to what you can expect to do today in the world of Jumbo Financing (over $417,000):

FULL DOC

Loan Amount	LTV	Credit Score	Debt Ratio	Reserves Required
$500,000	95%	680	45%	6 months
650,000	90%	680	45%	6 months
750,000	85%	700	45%	6 months
1,000,000	80%	680	45%	6 months

Stated Income / Self Employed

Loan Amount	LTV	Credit Score	Debt Ratio	Reserves Required
$500,000	90%	680	45%	6 months
650,000	85%	720	45%	6 months
750,000	75%	720	45%	6 months
1,000,000	70%	720	45%	6 months

How about Rates? One of my insider newsletters has this to state about rates and locking:

"We still maintained a lock-in stance for all non-conforming and jumbo loans as that market is changing daily. Until Wall Street investors set the market for jumbo loans, we maintain that stance."

I hope this helps you know a little better of what is going on in the dimly lit backrooms of lenders and those that buy their pools. If you have questions, please feel free to contact me at any time.

Mike Mueller (925) 288-9977 Ext 104