The New York Times has an interesting article that explains the affect the subprime lending meltdown is having on so-called “jumbo” loans.
Here’s the bad news: If you’ve got great credit and need a loan for more than 417k—your interest rates are jumping. Lenders are no longer as interested in offering loans larger than the 417k Fannie Mae, Freddie Mac cut off point. According to the Times, this is shutting down the more expensive real estate markets.
From the NYT:
For months after problems appeared in the subprime mortgage market — loans to customers with less-than-sterling credit — government officials and others voiced confidence that the problem could be contained to such loans. But now it has spread to other kinds of mortgages, and credit markets and stock markets around the world are showing the effects.
Those with poor credit, whether companies or individuals, are finding it much harder to borrow, if they can at all. It appears that many homeowners who want to refinance their mortgages — often because their old mortgages are about to require sharply higher monthly payments — will be unable to do so.
Some economists are trimming their growth outlook for the this year, fearing that businesses and consumers will curtail spending.
“In the last 60 days, we’ve seen a substantial reduction in mortgage availability,” said Robert Barbera, the chief economist of ITG, a brokerage firm. “That in turn suggests that home purchases will fall further. Rising home prices were the oil that greased the wheel of this engine of growth, and falling home prices are the sand in the gears that are causing it to grind to a halt.”
The cheap money party seems to be over.
In a Credit Crisis, Large Mortgages Grow Costly [New York Times]