High-end mortgages get easier

By Marilyn Lewis

Things are looking up for buyers and owners of higher-priced homes: The jumbo-loan freeze is thawing.

After the bank scare began last fall, jumbos -- mortgages bigger than what the government will buy or guarantee (between $417,000 and $729,750, depending on the location) -- dried up. "Six months ago, most of the industry wasn't even offering that type of loan," says Jumana Bauwens, a spokeswoman for Bank of America.

Now, B of A is promoting a 30-year fixed-rate jumbo with rates around 5.78% and fees at 1 point (or 1% of the loan amount). The Wall Street Journal quotes Guy Cecala, the publisher of Inside Mortgage Finance, as saying he expects more banks to follow.

Jumbos cost more because banks have to hold on to them or find nongovernment investors. Conforming loans, for comparison, are averaging 5.18%, with 0.44-point fees. The spread, though, is narrowing, Bauwens says. "I've seen people get 30-year fixed rates, on the conforming side, at anywhere between 4.5% to 5.25%."

Still a tough loan to crack

So far, though, Glendale, Calif., mortgage broker Jackie Davidson says she hasn't seen any change. Jumbos used to be her bread and butter. But "jumbo rates have not dropped, and the guidelines are so restrictive that's it's been in kind of a holding pattern," she says. Rates on 30-year fixed jumbo mortgages averaged 6.52% last week, compared with 7.51% six months ago, according to Bankrate.com.

Davidson's right about the restrictions: Bank of America, for example, requires 20% down for mortgages up to $1.5 million and 30% down up to $3 million. "Borrowers need a very strong credit score, a full appraisal and six months of cash reserves to cover principal, interest and taxes," Bauwens says.

• Video: 3 steps for qualifying for a mortgage

"Who cares about McMansion mortgages?" you may ask. But there are whole metro areas where prices are so high that purchasing even a complete dump requires a jumbo loan. Places like California's Silicon Valley, where the median price of a sold home was $525,000 at the end of 2008, or Honolulu, where the median was $610,000. (See the National Association of Realtors' report on sold homes.) In such areas, when buyers can't get jumbo loans, the real-estate market tumbles.

Granted, jumbos aren't the cause of the price drops in many high-end regions (such as 39% in Southern California and in 33% in Phoenix), but their disappearance deepens the hole.

Continued: Limits on reverse mortgages rising

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