Foreclosures Affect Jumbo Loans Too!

The concern and chaos in the real estate mortgage market in the U.S, due to the rising rate of foreclosures, can be seen among the high-end income group home buyers as well, as rates of jumbo loans are also being affected along with the rates of sub-prime loans.

The falling rates of the treasury bonds – the lowest in the last 10 years – have increased rates on jumbo loans. American Home Mortgage Investment, which is the 10^th largest mortgage provider in the country, has surrendered itself to the turmoil that is taking place in the mortgage sector and has filed for protection from creditors and declared itself devoid of funds.

The situation is reaching alarming proportions in the U.S. Aegis Mortgage Corp. in Houston is finding it very difficult to manage, and has recently fired 60% of their staff. Another company, Luminent Mortgage Capital Inc. in San Francisco had to delay its dividends to pay back creditors recently.

Lenders have downsized the number of people to whom sub-prime loans are given. They have even raised the rates on jumbo loans given to people with good credit records. The limit of $416,999 for loans extended for purchase and guarantee has been exceeded, and this is what has caused lenders to take this decision.

Jumbo loans share 16 percent of the entire loan market and are common in places like New Jersey, California, New York City, Chicago, Washington D.C. and other areas with high value of real estate. Initially, an average rate that the lenders were giving was 7.1 percent. From last week the rate has increased to 7.35 percent. In the middle of May the rate was just 6.49 percent.

The implication of this move will be seen mainly in the prices of homes generally bought by people of the middle-income group segment. Even the families who can afford big down payments are finding it very difficult to go in for property purchasing.

Investors buy mortgages as a security device, but now they are taking a very cautious approach due to the current fragile sub-prime loan market situation. This in turn has made lenders apprehensive in issuing mortgages.

Fear of rising foreclosures has made the investors very careful and they are now not willing to invest in any real estate loans which are not guaranteed. Therefore, the only option that the lender has is to hold the loan for the time being or extend it only to those who actually qualify for it and meet all the requirements.

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