South Florida Mortgage Lenders Tighten Standards on Jumbo Loans
The latest South Florida housing market crisis involves buyers with deposits on expensive condos who now can’t get loans in the tightened “jumbo” market for loans larger than $417,000.
“We have a building closing in November, and I am hoping things will settle out by then,” said Gil Dezer, president of Dezer Development, a partner in the Trump Grande development in Sunny Isles Beach. “But if I was closing next month, it would be a huge cause for concern.”
Developers, lenders and real estate consultants say numerous South Florida homebuyers are feeling the effect of fewer lenders, higher Florida mortgage rates, more conservative underwriting and less Wall Street investing in the jumbo market.
Jumbo loans are larger than the maximum $417,000 loan purchase permitted for government-sponsored corporations Fannie Mae and Freddie Mac. Assuming a 10 percent down payment as lenders tighten standards, a house or condominium priced at $463,000 or higher typically requires a jumbo loan.
Even though median prices are falling in South Florida this year, Florida Association of Realtors data for July indicate the vital role of jumbo loans. For that month, median prices of existing condos were $252,000 in Miami-Dade, $187,200 in Broward and $178,200 in Palm Beach County.
These prices are much less than those advertised for many condos currently under construction.
As the bad credit Florida mortgage crisis began growing several months ago, many pension funds, hedge funds and other institutional investors have only been buying mortgage securities that are guaranteed by Fannie Mae and Freddie Mac.
The drying up of the investor market has included mortgage-backed securities backed by prime loans and issued by major investment banks said Guy Cecala, publisher of Bethesda, Md.-based newsletter Inside Mortgage Finance.
“Anything non-agency is considered a potential hazardous waste right now,” Cecala said, adding he anticipates investors will show renewed interest in prime jumbo securities within several months. “It should be one of the earlier recoveries in the credit crisis. There is no reason to stay out. In many areas of the country, this is the only loan you can get.”
Fannie Mae and Freddie Mac set loan limits each November, based on annual changes in housing prices measured by the Federal Housing Finance Board. The U.S House of Representatives has passed a bill, which House leaders hope the Senate will approve, that would change the formula and lead to higher loan limits.
Rates on jumbo loans have been rising in South Florida and around the country.
Among Florida mortgage lenders in Miami-Dade County, Bankrate.com’s surveys on 30-year fixed-rate loans show the spread between the average rate on jumbo loans and the average rate on Fannie Mae/Freddie Mac eligible loans grew to 1.06 percent on Aug. 22 from 0.31 percent on June 13.
