Jumbo Loans Are Reborn, But Terms Are Stiffer

Freddie Mac announced similar standards but wants minimum 700 FICO scores on any loan with less than a 25 percent down payment.

Don't expect interest rates on the new super-size conforming jumbos to be anywhere near competitive with smaller mortgages. Besides higher base rates, there are add-on charges in "declining" markets that can push final note rates beyond 7.5 percent. Many areas tagged as declining are in the former housing-boom markets in California and the Eastern Seaboard, where jumbo mortgages are most common and most needed.

For example, in Naples, Fla., the first batch of conforming jumbos available in late March came with base rates of 6.875 percent, according to mortgage brokers, but with the declining market and other price adjustments, the final rate to some borrowers came to 7.875 percent.

William Dukes, senior loan officer for Summit Home Mortgage in Naples, said a local borrower with a high credit score, a 20 percent down payment, and solid income and assets could get a $400,000 first mortgage at a fixed 5.625 percent. But the same applicant seeking a new $500,000 Fannie Mae or Freddie Mac conforming jumbo loan would pay well over 7 percent after add-ons.

Dukes said the rates on the new jumbos are "surprisingly high" compared with loans under $417,000. Traditionally, the spread between conventional loan rates and jumbos was about half of a percentage point.

"I don't know what [Congress] is really accomplishing here," he said.

Paul Skeens, principal broker at Carteret Mortgage in Waldorf, disagreed, arguing that some pricing on the new jumbos is attractive, especially for FHA loans with down-payment requirements far below the 10 percent mandated by Fannie Mae and Freddie Mac.

"I don't think the stimulus was intended to buy the market with low rates," he said. "It was intended to stabilize the market" by ensuring adequate funding for housing in high-cost areas.

"You can buy a $700,000 house with 3 percent down with a [30-year-fixed] rate of 6.5 percent right now" in the Washington area, Skeens said, "and that is really an amazing deal."

Kenneth R. Harney's e-mail address is KenHarney@earthlink.net.