Thursday, August 21, 2008

Jumbo Mortgages - No Boost in Sales

The chart shows the monthly percentage of $jumbo purchase mortgages to all conventional purchase mortgages. $Jumbo mortgages in the data are mortgages having mortgage amounts greater than the conforming loan limits set by HUD. The data in the chart does not use the new maximum mortgage amounts that the GSEs can purchase as a result of recent legislation (economic stimulus legislation temporarily set the conforming loan limit as high as $729,750 until December 31, 2008 and it is location dependent).

In 2005, $jumbo mortgages were conventional mortgages greater than $359,650. In 2006, 2007, and 2008 $jumbos were mortgages greater than $417,000 (the data in the chart does not adjust for higher conforming limits in high cost areas). The step downward of percent $jumbo in the chart following December 2004 and December 2005 was caused by the increases in the conforming mortgage loan limit. There was an increase in the conforming loan limit between 2003 and 2004 however the percent of $jumbos were rapidly increasing in step with the surging prices of homes at that time.

Over the past several years the percentage of $jumbo mortgages versus all conventional purchase mortgages was above 10 percent. Since last August, the percentage of these $jumbo mortgages moved down towards to 5 percent. What are the reasons why the proportion of $jumbos do not return to the levels of prior years? Here are some explanations:

  • The GSEs have not made the new $jumbos attractive for their seller/servicers to effectively sell these products to home purchasers.

  • The prices of homes have fallen so that demand for $jumbo mortgages to purchase the homes have fallen

  • There is hardly any secondary mortgage market for $jumbo mortgages

  • All of the above

1 comment:

smoke said...

they cost too damm much!