Word: jumbo
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Dates: during 1990-1999
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...Martin CD is like buying a soda at the movies. You ask for the small, but when the guy behind the counter says, "Hey, the medium is only a quarter more," you realize how thirsty you are. So you go for it. Then the guy says, "How about the jumbo?" and you keep trading up until you end up with a vat of soda large enough to have an undertow. That drink is Ricky Martin. He lures you with his charisma, his outsize energy, his obvious love of performing, and soon enough the San Juan rhythms are pumping, his voice...
Most people will never seek a "jumbo" mortgage--one too big to be sold to Fannie Mae or Freddie Mac, the federally chartered agencies that buy mortgages in the secondary market and virtually guarantee the availability of home loans for working stiffs. The breakpoint is high enough--$240,000 this year--that the higher interest rates on loans of that size afflict only one in five buyers nationwide. And so what? They can afford it, right? Don't be so sure. In today's torrid housing market, prices in some regions are escalating far faster than personal income, shoving more...
Russ Marinello, a mortgage broker for Bay Counties Financial, says 80% of the mortgages he originates are jumbos--and no, it's not his specialty. The San Francisco area is unusually pricey. But jumbo creep is a broad issue. The breakpoint adjusts annually to match the rise in the national median home price, 5% last year. Still, in places where home prices are escalating faster than that, more buyers will be pushed into jumbos...
Today mortgage money is easy to find. A 30-year fixed-rate jumbo goes for about 7.08%--not that much more than the smaller "conforming" loan at 6.9%. Last October, though, jumbo borrowers had to pony up an average 7.22% when nonjumbo borrowers were paying only 6.76%, a punishing difference. On a $250,000 loan, that extra interest cost comes to $77.20 a month, or $27,792.13 over the life of the loan...
...travesty is that jumbo borrowers have a lower delinquency rate, and on that basis deserve a lower, not higher, mortgage rate. Other considerations muddy this analysis. But people who know about these things pretty much agree that credit risk plays virtually no role in setting the jumbo premium, which typically runs .25 to .5 percentage point above nonjumbo loans. That premium is the result of financing advantages enjoyed by Fannie and Freddie, who pass along lower costs to nonjumbo borrowers. The problem with this stealth socialism is that it does not take hot markets into account. The breakpoint should...