June 22nd, 2009 10:04 AM by Sherry Lee
By JEFF OSTROWSKI
Palm Beach Post Staff Writer
Sunday, June 21, 2009
Three years ago, anyone with a pulse, a dismal credit score and an optimistic view of his financial future could score a mortgage for half a million dollars or more.
Today, even borrowers with hefty down payments, stellar credit scores and big personal balance sheets find it nearly impossible to land so-called "jumbo" mortgages, as loans of more than $417,000 are known.
"It's horrible," says Bobby Bashwiner, a loan officer at Group One Mortgage in Jupiter. "You have to have at least 30 percent down. You need a 700 credit score. You can hardly find a fixed rate. And if it's a condo, lenders won't even look at it."
In another symptom of how drastically the real estate market has changed in the past three years, lenders have all but stopped making jumbo loans. The credit crunch is one reason the housing recovery of recent months has skewed heavily toward low-cost homes, while properties priced for more than $500,000 can languish on the market for months or years.
Realtor Randy Bianchi of Paradise Properties in West Palm Beach has a $600,000 listing in a gated community that has been on and off the market since 2006. "There's just no activity," Bianchi says.
Other sellers of higher-end properties voice similar frustrations. In Palm Beach County, sales of under-$500,000 homes have increased during the past two years, but sales of over-$500,000 properties have plummeted, according to statistics from the Realtors Association of the Palm Beaches.
"There's much more activity in the under-$500,000 category right now than the over-$500,000 market, that's for sure," says Scott Agran, head of Lang Realty in Boca Raton.
The trend is the same nationally. Inventories of over-$750,000 homes have soared in the past two years, the National Association of Realtors says.
Where does blame lie?
All of this raises this chicken-and-egg question: Is the high-end housing market so slow because there are so few jumbo loans? Or are there so few jumbo loans because there are so few buyers of high-end homes?
Dennis S. Hudson III, head of Seacoast National Bank in Stuart, says the jumbo credit crunch is only part of the problem.
"A far larger issue is lack of buyers," Hudson says. "The folks who have been hit hardest in many ways are wealthier folks."
But the National Association of Realtors sees the lack of jumbo loans as a significant obstacle to high-end sales.
"The jumbo loan problem has been hindering that market," says association Chief Economist Lawrence Yun.
That is not expected to change when the latest existing-home sales figures are released Tuesday. As a result, the Realtors group is urging Congress to raise conventional loan limits to as much as $729,500 for high-cost markets such as New York, California and Hawaii. President Bush raised loan limits to those levels for 2008, but the move was nearly meaningless for Palm Beach County, where jumbo limits rose from $417,000 to $423,500.
Mortgage giants Fannie Mae and Freddie Mac still buy loans under $417,000, which means "conventional" mortgages are more plentiful than jumbo loans. And with Federal Housing Administration loans growing more popular, the FHA recently raised its loan limits to $423,750 for Palm Beach County and $375,000 for the Treasure Coast.
No more securitization
But last year's mortgage meltdown put an end to the once-thriving practice of securitizing jumbos, in which Wall Street players snapped up big mortgages and resold them to investors. Investment banks Bear Stearns and Lehman Brothers were among the players in that frenzied market. When they collapsed, so did the jumbo market.
"Loans over $500,000 are very, very difficult to get, because there's no securitization in the mortgage market anymore," says Bill Davis, head of Private Funding Specialists, a mortgage banking firm in Palm Beach Gardens. "The securitization is the key. When Lehman went down, that took away the oil that drove the engine."
During the mortgage boom, jumbo loans were a great deal. They cost only a quarter of a percentage point more than conventional mortgages. But amid the jumbo loan credit crunch, that gap has soared. The spread between conventional and jumbo loans rose to as much as 1.79 percent this year, says Bankrate.com of North Palm Beach.
That gap rankles the affluent borrowers who take out jumbo mortgages.
"Realtors are saying their clients just don't want to enter the market because they feel cheated," Yun says. "They say, 'I have high income, I have good credit - why is everybody else paying less than I am?'"
Signs of life
That's not to say the high-end housing market has completely shut down. Palm Beach County saw 86 sales of properties for more than $500,000 in May, according to the Realtors Association of the Palm Beaches.
Some buyers paid cash. Some took out mortgages for $417,000 and covered the rest of the purchase price with large down payments or with home equity lines of credit.
And some took out adjustable-rate mortgages from lenders such as Seacoast National Bank, which has moved cautiously into the jumbo market. Seacoast is making adjustable-rate jumbo loans and keeping them rather than selling them to Wall Street.
"There is opportunity there, but we have to be very careful in the jumbo market," Hudson says.
After the housing crash exposed the risks of loose lending, Seacoast and other lenders are making loans only to borrowers who make large down payments and boast bulletproof credit histories.
Says Hudson: "Everything has to be perfect."