Bank of America has cut interest rates on jumbo mortgage loans in the hopes of expanding its share of what the bank sees as an underserved market for loans too big for purchase or guarantee by Fannie Mae and Freddie Mac.
Not everybody will qualify for the 30-year, fixed-rate loans of up to $3 million that Bank of America has been offering at reduced rates since January, with interest rates currently in the high 5 percent range.
In order to qualify, borrowers will need strong credit (a 720 FICO score or above), down payments of 20 percent or more, documented income, full appraisals, and assets sufficient to cover six months of payments. But Bank of America thinks its fixed-rate jumbo loans will prove to be attractive to qualifying borrowers, because many competitors will be hard-pressed to match its rates.
Jumbo loans have become more expensive and harder to come by since September 2007, when rising delinquencies gave investors who fund most home loans through the purchases of mortgage-backed securities cold feet about “private label” securities that don’t carry the backing of Fannie and Freddie.
Bank of America and Countrywide Financial Corp., which it acquired last year, funded $16.12 billion in jumbo loans in 2008. Although jumbo loan funding dropped to just $2.4 billion in the fourth quarter, Bank of America is already seeing “very nice volume” since introducing its more aggressive pricing.
Bank of America will only offer the loans directly to consumers — and not through independent mortgage brokers — through retail bank branches and Countrywide Home Loans (which will be re-branded Bank of America Home Loans on April 22).
The loans are aimed not only at homebuyers, but homeowners with adjustable rate mortgage (ARM) jumbo loans who are looking to refinance at better rates. For both purchases and refinancing, the loan-to-value ratio can’t exceed 80 percent on loans up to $1.5 million, or 70 percent on loans up to $3 million.
After the secondary market for jumbo loans seized up in 2007, lawmakers raised the loan limits for Fannie, Freddie and FHA loan guarantee programs. For most of 2008, the $417,000 conforming loan limit was allowed to stretch to 125 percent of the median home price in high-cost markets, with a ceiling of $729,750.
Assuming that the jumbo loan market would be on its way to a recovery by now, Congress mandated the limits would step back down to 115 percent of median home price on Jan. 1, with a ceiling of $625,500.
The $787 billion economic stimulus bill passed by Congress in February, the American Recovery and Reinvestment Act, restored the limits in place during most of 2008 for the remainder of this year.
This good news from Bank of America will be especially helpful to buyers who are looking at real estate in Highlands or Cashiers North Carolina where the average sales price for a single family home in 2008 was over $600,000.
At Meadows Mountain Realty we can answer your questions about buying or selling real estate and help you get on the right path to owning your perfect place on the Highlands Plateau. Give us a call at 828-526-1717 or e-mail any of our brokers at [email protected]. We look forward to hearing from you soon.