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Mortgage Q&A: Jumbo rate looks good if credit is

- The Washington Times - Friday, May 23, 2008

Every time I write a column updating readers on the mortgage market, I find myself having to write another column updating the update. Today it's time for an update on the recently introduced "agency jumbo" mortgage rates available in various high-cost areas of the country, including the Washington area.

Congress recently passed legislation to allow Fannie Mae and the Federal Home Loan Mortgage Corp. (Freddie Mac), the two government-chartered entities that purchase mortgage loans from banks, to increase loan limits to $729,250 in some areas.

The purpose of the legislation is to provide liquidity in the market in hopes of lowering rates, creating a refinance wave and stimulating the housing market.

Since the mortgage meltdown, rates on jumbo loans - those in excess of $417,000 - have skyrocketed north of 8 percent, while conforming loan rates have dropped to below 6 percent. Jumbo loan holders had no refinancing opportunities, and prospective purchasers were faced with high rates.

When the new loan limits became available, consumers and mortgage brokers alike were disappointed to find that the agency jumbo rates were roughly 1 percent to 1.25 percent higher than the conforming rates with loan amounts of $417,000 and less.

Though this is an improvement from the upper 8 percent range, the levels weren't low enough to create a refinancing wave or stimulate the housing market.

A couple of weeks ago, I reported that Fannie Mae and Freddie Mac were prepared to buy jumbo loans from banks at a predetermined price up to 90 days in advance, which, the Fannie and Freddie executives say, should bring down the jumbo rates.

As of this writing, I can tell you that it appears to be working somewhat. The jumbo rate entirely depends upon the specifics of the borrower's situation.

Here's a sampling of 30-year fixed rates I might offer to my clients as of this writing. All rates carry no points or origination fees.

* Conforming loan under $417,000 – 5.875 percent.

* Agency Jumbo in excess of $417,000, credit score greater than 700 and 40 percent equity – 5.875 percent.

* Agency Jumbo in excess of $417,000, credit score greater than 700 and 25 percent equity – 6.125 percent.

* Agency Jumbo in excess of $417,000, credit score 660 and 20 percent equity – 6.625 percent.

* Agency Jumbo in excess of $417,000, credit score 660, cash-out refinance with 25 percent equity remaining – 6.875 percent.

The bottom line is this: Jumbo loan holders in high-cost areas who are squeaky clean can get some cheap mortgage money. For those who hold a jumbo mortgage and have good credit and lots of equity, refinancing certainly could make sense. I have only seen jumbo fixed-rate money lower than 6 percent a couple of times in my 20-plus year career.

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