A Break on 'Jumbo Loans'

The New York Times
December 9, 2007 Sunday
Late Edition - Final

BYLINE: By BOB TEDESCHI
SECTION: Section 11; Column 0; Real Estate Desk; MORTGAGES; Pg. 11

PROSPECTIVE borrowers in the New York area who are likely to be in the market for a mortgage that is close to the ''jumbo loan'' category have received a break from Washington.

Late last month, the federal government held steady at $417,000 the so-called conforming loan limit -- the line above which mortgages become jumbo loans, and typically carry higher rates.

The limit, which is annually adjusted, usually moves in lock step with average home prices across the country, at least when prices are rising. There was some speculation earlier this year that the government could drop the conforming loan limit because house prices have been dropping.

The national average home price in October, for instance, was $295,573. That was $10,685 lower than a year earlier -- a 3.5 percent drop.

While not falling quite as sharply, parts of the New York area have registered declines. For instance, the median sale price of a home in Nassau and Suffolk Counties was 1.4 percent lower in the third quarter of this year than in the second quarter, according to a report late last month by the Office of Federal Housing Enterprise Oversight.

But some towns have fared far worse. According to First American LoanPerformance, a San Francisco-based mortgage industry consultancy, home prices on Centerport in Suffolk County were 8.6 percent lower in September 2007 than a year earlier.

Thanks to those drops -- and the fact that the conforming loan limit was held steady -- home buyers have somewhat better odds of seeking mortgages that are below the jumbo loan threshold. Jumbo loans typically carry interest rates about one percentage point higher than conventional loans.

Late last month, for instance, borrowers could find a 30-year fixed-rate mortgage for 5.875 percent on a loan of $417,000. For a jumbo loan of $418,000 from the same lender, the rate would rise to 7 percent, said Marc Schwaber, president of Preferred Empire Mortgage, a Manhattan-based brokerage. The monthly principal and interest payment for the jumbo loan would be $2,780.96, compared with $2,466.71 for the conventional loan. Over five years, the jumbo loan would cost $18,855 more.

''Because of the drop in housing prices,'' Mr. Schwaber said, ''many more people are going to qualify for less expensive conventional loans.''

Mr. Schwaber says borrowers who seek conventional mortgages also have an easier time qualifying for a loan because federal law requires Fannie Mae and Freddie Mac to buy conventional loans from lenders. Knowing there is a secondary market for their loans, lenders can offer more generous terms.

Practically peaking, Mr. Schwaber said, borrowers with good credit can often qualify for a conventional loan with a down payment of 5 percent, and borrow extra money to cover two months of principal, interest, taxes and insurance. Borrowers seeking jumbo loans must typically offer significantly higher down payments, and have reserves to cover several months of principal, interest, taxes and insurance.

Borrowers in the tristate area suffer under the yoke of jumbo loans far more than those in many other states, said First American LoanPerformance.

New York, New Jersey and Connecticut were among the six states with the highest percentages of jumbo loans. New York was the highest in the area, at 9.6 percent. California led the nation, with more than 25 percent of its mortgages in the jumbo category