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   ARTICLE   |   From Scotsman Guide Residential Edition   |   February 2013

One Loan Does Not Fit All

As the market recovers, originators may find success in the jumbo niche

This past year, the pairing of historically low mortgage rates coupled with limited price depreciation and continued home-value stabilization led to a cautiously optimistic 2012. With the advent of a new year, signs are pointing to a continuation of increased confidence levels among buyers, supporting an ever- improving mortgage landscape.

Driven by an appetite for existing and new home sales, certain local real estate markets are strengthening, and as this occurs, many mortgage banks and brokerages are beginning to experience amplified interest in the upper price ranges where jumbo financing is required. As property values continue to stabilize, an increasing number of jumbo-eligible borrowers may want to take advantage of near-historic rates for both purchases and refinances.

Although nothing is ever certain, with rates remaining attractive and a continued increase in buyer confidence, there are reasons to be especially optimistic about the residential mortgage landscape in major metropolitan areas. Buyer confidence in the general residential market has extended to those in the upper brackets, and some jumbo-eligible borrowers who were on the fence are finally making their move. For mortgage brokers and originators, the jumbo markets within major cities such as New York, Boston, Philadelphia and Washington, D.C., may prove particularly intriguing.

Like any niche, however, working in the jumbo market has its own unique set of demands and particulars. For instance, one of the top things to remember when working with a jumbo borrower is to familiarize yourself with the full range of product choices for your customer. In particular, some borrowers are starting to look for interest-only products. Although these products were considered by many to be almost taboo as recently as three years or four years ago, attractive rates and cash-flow opportunities are rekindling appeal among savvy buyers.

Although fixed-rate loans are still appealing, adjustable-rate products are also close to historic lows. Not every jumbo borrower needs a fixed-rate loan. In addition to the traditional 30-year and 15-year fixed-rate loan products, brokers and originators should educate their clients on other jumbo mortgage products.

For example, some banks and lenders may offer buyers a jumbo first mortgage and a piggyback second trust to enable them to borrow a large percentage of a high-value property’s purchase price. Using a jumbo mortgage in conjunction with a piggyback second trust is something that homebuyers should know more about as they investigate the financing methods that will best meet their needs.

When working in this niche, mortgage professionals also should know that the industry is still in a volatile period for property appraisals. Although the industry is strengthening, borrowers have to recognize that we’re coming off one of the toughest real estate periods in our country’s history. Even though a property may have a high worth, if there are no other comparable sales to substantiate a property’s value, the assessment may not come in as high as the sales price.

This can add a layer of complications to any transaction, but in the jumbo market this can be particularly complicated. As jumbo mortgages are applied to upper-end or luxury properties, there typically aren’t as many comparable properties. When jumbo mortgages are required, appraising these properties always has been a difficult science to master, and borrowers and originators alike should be aware that appraisers cannot overlook recent history, which in turn may have an impact on the speed and approval of financing.

Nonetheless, as the factors align to strengthen the jumbo-mortgage landscape, originators and Realtors should partner together to best meet the needs of their clients in this dynamic period in the real estate market. 


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