my lender stopped locking rates for jumbo confirming loans

F

financeguy_IHB

New member
I was pre-approved for a jumbo conforming loan, but my lender said today that they are no longer locking the lower confirming rates for loans between 418K-625K because the law is set to expire at the end of the year. Therefore the 6% jumbo conforming loan I was previously approved at is now a 7.5% regular jumbo loan if I want to lock a rate. This really sucks. Does anyone know if the law will renew and when lenders will lower rates again for 418K-625K loans?

Thanks.
 
[quote author="financeguy" date=1228222119]I was pre-approved for a jumbo conforming loan, but my lender said today that they are no longer locking the lower confirming rates for loans between 418K-625K because the law is set to expire at the end of the year. Therefore the 6% jumbo conforming loan I was previously approved at is now a 7.5% regular jumbo loan if I want to lock a rate. This really sucks. Does anyone know if the law will renew and when lenders will lower rates again for 418K-625K loans?

Thanks.</blockquote>


There are lots of theories but no guarantees as to what will happen at the beginning of the year. Note also that FHA financing will be moving from 3% minimum down to 3.5% beginning January 1.



If the pattern develops as it has in past downturns, watch for more sellers to be offering <strong><a href="http://en.wikipedia.org/wiki/Wraparound_mortgage">wrap financing and assumable deals</a></strong> to get their deals done.



Good luck,

-IR2
 
IR2 what is the implication of Wrap Financing? I understand what the seller is trying to do, but can you explain the bigger picture?

-bix
 
I'm seeing a lot more r.e. listings in CT with "owner financing available"...... But I'm sure they would only be 3 to 5 yrs, then balloon payment due (and who knows where rates will be then !)
 
[quote author="biscuitninja" date=1228226899]IR2 what is the implication of Wrap Financing? I understand what the seller is trying to do, but can you explain the bigger picture?

-bix</blockquote>


I'll defer to lendingmaestro or modm if they're out there, but for starters here's my brutish attempt:



Goal: You, are trying to sell your home for the highest dollar they think you can get.

You are willing to take on increased risk in order to get extra dollars.



<blockquote>Buyer pool consists of the following subsets:

1. Not interested, and can't afford.

2. Not interested, but can afford.

3. Interested, but can't afford.

4. Interested and can afford.

5. Interested, can afford, and can qualify!</blockquote>


Through the rally, buyers push themselves (and are pushed by others) up the scale.

Sellers have their pick of options 3 through 5.

When lenders lower their standards the skew is even more pronounced, bolstering the numbers on the "interested" side.

This flooding helps push prices higher. You, as the seller, have your pick from any of them.

During the decline, however, buyers retreat quickly and heavily back to 1 and 2.

Remaining buyers in category 5 have a strong negotiating position, and get the best deals.

Sellers trying to get "more" resort to this creative financing to skip over the strongarm tactics of qualifiers and test the 3s and 4s.

If it works, great. You got your price AND a bonus on the interest.

If it doesn't work out, it gets really, really ugly.



Hope this helps,

-IR2
 
The problem with wrap-arounds is the "due on sale" clauses in most mortgages. Lenders do not want to keep low-interest-rate mortgages alive when interest rates are rising, so they make the loans callable when a sale occurs. I doubt we will see much wrap financing going forward even if sellers want to do it.
 
IR2 - So it sounds like you are saying that we may be seeing more non-mortgage alternatives to real estate financing coming up... if not specifically a wrap-around mortgage, then maybe more things like Installment Land Contracts / Contract for Deed? (We were discussing that a little bit <a href="http://www.irvinehousingblog.com/forums/viewthread/3823/">here</a>.) I don't mean to put words in your mouth but is that what you are saying when you speak of "assumable deals"? Thanks for the info.
 
[quote author="IrvineRenter" date=1228260109]The problem with wrap-arounds is the "due on sale" clauses in most mortgages. Lenders do not want to keep low-interest-rate mortgages alive when interest rates are rising, so they make the loans callable when a sale occurs. I doubt we will see much wrap financing going forward even if sellers want to do it.</blockquote>


IR - I respectfully disagree. The banks will always fight for their cheese. Smart sellers will fight back.



Having been down this road before, there are very good, very legal ways around the "due on sale" or "acceleration" clause, including transferring title and interest into a living trust for your own benefit, among other tools. As the credit tightening continues, and rates drive up, the margin between old rates and new will bring this more into vogue.



Even without the benefit of trust tools, it most likely would be in the best interest of the banks to <strong>not enforce</strong> the clause as it would be more costly to them to try to squeeze more out of the seller who <u>wouldn't be doing this if they didn't have to</u>. It will cost the bank more to foreclose, evict, and run up carrying/selling costs. Banks are big and slow, but not dumb. If I were looking for my monthly rent check, I would be happy to cash it from whomever sends it.



The German axiom <strong>Keine Welle</strong> - "make no waves where none are needed" fits.



<strong><a href="http://www.legalwiz.com/due-on-sale-clause">A decent link</a></strong> with some of this history is written here. It spells out the risk/reward issues and also does a good job of explaining WHY (i.e. the seller is out of other options.), and even slightly delves into the ethics of the issue citing some case histories.



Socal - I hope this addresses your question, as well.



Who knows... you may very well be right, but I propose that it will be difficult to get to rental parity without seeing far more of this behavior. Tough to have one without the other, no? I also think this fits with the pattern I've seen before. Time will tell.

-IR2
 
The remark in this listing I was just looking at made me think of this thread...



<a href="http://www.redfin.com/CA/Yorba-Linda/3780-Black-Forest-Ln-92886/home/4268419">"SELLERS OPEN TO DISCUSS CREATIVE FINANCING!!!"</a>
 
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