High-end Double Whammy

Jumbo Loan Premium to Shrink

With the collapse last year of the private mortgage bond market on Wall Street, home buyers, builders and refinancers who relied on jumbo financing were left with few sources except at punitively high interest rates and huge down payments.

--Kenneth Harney, "A Big Boost for Buyers Seeking Jumbo Loans" (The Washington Post; 3/21/09)

Ordinary economic mortals are probably not feeling much empathy for the relatively affluent these days -- especially if they have a connection to Wall Street.

However, today's housing market has delivered an unprecedented wallop to upper bracket Buyers: at the same time their wealth has been whacked -- in some cases by more than 50% -- by falling asset prices, their loan costs are at (relatively) nosebleed levels.

While "conforming" (under $417k) mortgages dropped to as low as 4 1/2% last week, so-called jumbo loans still cost 6 1/2% or more.

It's tough to be rich, huh?

Actually, that's a huge gap, and arguably, an unfair one. More to the point, closing it offers lenders some tantalizing profits.

So, as Harney is reporting in his weekly column, a number of lenders (including Bank of America and ING) are rolling out jumbo loan products that aim to slice this premium. (The impact is less in the Twin Cities than on the coasts, because home prices here are much lower.)