Subprime Meltdown Spreads To "Jumbo" Mortgages

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]


Edit Your Comment

  1. gibsonic says:

    i picked the worst possible time in the past 5 years to try to sell my house….damn.

  2. shoegazer says:

    WTF – 417k barely buys a one bedroom flat in London. And why is it 417k, exactly? Did someone pull a number out of the hat at Fannie Mae?

  3. shoegazer says:

    Ahem – $417k, not £417k. The housing market over here isn’t THAT batshit insane just yet.

  4. Trai_Dep says:

    All of which wouldn’t have happened if the Gov’t stepped in and stopped the predictable madness two years ago. Thanks for destroying the country, bankers and Republicans!

  5. Trai_Dep says:

    @shoegazer: ha ha ha. Crack dens in California average for more than that.

  6. myrall says:

    I just closed on my house on July 27 with HomeBanc (a very large mortgage banker in the South) as my lender. Four or five days ago, HomeBanc said they’re not giving out any more mortages. Then, about two days ago, it’s announced HomeBanc has filed for bankruptcy. THEN, in the mail, I get a card for $500 off closing fees on my next transaction with HomeBanc and another card I can give a friend!!

    What a joke. And I’m expecting my loan to be sold in 4…3…2…1…

  7. Starfury says:

    The housing market where I live has pretty much come to a standstill. People have houses on the market for months and they don’t sell; prices go down and they’re still not selling.

    In Palo Alto/Menlo Park: 4be/4ba, 1600 sq ft: 1.2 MILLION.

    2 bed/2 bath: 1.4 million. Who in their right mind would pay this money?

  8. Nemesis_Enforcer says:

    @trai_dep: Lol yepper what makes it even worse out here is all the people who converted apartments into townhouses/condo’s. Now its even harder to find a apartment in a goodish area.

    Just an example: My Mother in law bought her house in 91 for $125,000. She had a appraisal done last month, its now worth $850,000. She doesent want to sell since she has paid off the mortgage, but Jesus who could afford that kind of loan seriously? Oh BTW its a 3 bedroom 2 bath with a den and pool.

  9. jeffeb3 says:

    I’ll be needing to buy my first house in the next year or two, I hope this really brings down the insane prices in my neighborhood.

  10. alanitech says:

    This was typically terrible, screeching coverage of the financial market by The Paper of Record. The lead paragraph reports on some guy getting a quote for a 8% mortgage, then 13%. Neither of those numbers bears scrutiny (even in NY), and later in the article we learn that the average jumbo rate is actually under 7%.

    The spread for jumbos grew from 0.25 to 0.75 point lately. That changes the monthly payment of a $1.5M loan from $9235 to $9729. Exactly which multi-millionaires are finding that incremental $500 such a hurdle to buying their condo in another over-priced Manhattan development?

    Also in Sunday’s paper, but not on the front page, was Ben Stein’s much more level-headed analysis of the subprime meltdown. []

    Scrutinize these sorts of articles and do the math before making any major decisions based on the headlines.

  11. AndyDuncan says:

    @SHOEGAZER $417k won’t get you a 1 Bedroom flat in LA unless you’re willing to live in a crappy building in the absolute worst parts of the city. 1 bedrooms downtown (which is cheaper than the west side) are closer to $600k starting. Not as bad as London, but pretty absurd.

  12. j-o-h-n says:

    Can’t buy shit for $417K?!?!?

    As somebody in a ~$100K house on a 1/4 acre here in flyover-land, I can only say HA HA

  13. ARP says:

    ALAINITECH- I agree that the wealthy can probably afford the incremental increases. The problem is that there’s $500 less per month to be spent on consumer goods, the main engine of our economy. That’s the problem with this meltdown: 1) either the homeowner defaults because they can’t refi or 2) they squeak by, but they’re not going to Italian Garden as much and certainly not buying as many XXL tshirts from Old Navy as they used to. The extra cash is going to offset losses from #1, so its not going back into the economy.

  14. bedofnails says:

    @trai_dep: I suppose the individuals signing those sweet ARM deals without batting and eye, then 3 years later realizing their mortgage is now unfordable have zero culpability?

    Get off your horse man.

  15. jeffjohnvol says:

    A lot of this comes down to outsourcing of US jobs to India and China. Its a natural progression I guess, but if you take that many $80K+ jobs overseas, there will be need to be cuts somewhere, and in this case people unable to make mortgage payments.

    This one of the reasons that the banking industry has been a huge opponent to IT outsourcing. Lord knows corporations and Bush doesn’t give a darn about it (and to think I voted for him twice).

  16. mac-phisto says:

    @alanitech: the problem with ben stein’s “level-headed” analysis is its exclusion of virtually everything BUT subprime losses to prove a point. frankly, it sounds like 1st year college economics. his whole point is “i don’t know”.

  17. theblackdog says:

    Thank God, maybe now home prices will come back to a more reasonable level in the Washington DC Metro area.

  18. synergy says:

    On one hand I’m glad for $100K-$300 you can get an amazing house and some land where I live.

    On the other hand, it means the damn Californians keep showing up. Ugh.

  19. synergy says:

    Oops. I meant $100K-$300K.

  20. Chicago7 says:

    Man, the real estate market in Chicago is going take a hit. Almost every corner near my house is being built up or has been built up in the past 5-10 years with “Luxury Condos”. Most of which start at over $400k and most of which are currently unoccupied.

  21. Chicago7 says:

    Why were people getting ARMs, when the interest rate was so low?

  22. kimsama says:

    @theblackdog: Hear, hear. I can’t wait until anything is priced reasonably in NoVa.

  23. ChapstickAddict says:

    @Chicago7: Because people were getting qualified to buy houses based on the super low teaser rates. The people who are defaulting on their loans now that their ARMs have reset are people who could not have gotten approved for a fixed rate mortgage for the house they bought because they can’t actually afford the house they bought.

  24. anatak says:

    @Chicago7: Yes, with interest rates at 40-year lows, at what point do you realize that maybe, just maybe, you aren’t ready to buy a home.

    Hopefully, with less people qualifying for stupid loans, people will stop paying stupid prices for homes.

  25. bedofnails says:


    It wasn’t that the interest rates were so low, as so much as that the amount of money available in the market at the sub prime level; quickly paralleled that of the money available for those with good credit.

    Now that there is a freeze on new loans, and as this article points out – lenders have set caps on the amount of fixed equity available, those in over their head, or even upside down can’t refi for the dollar amount needed to bail out, or compensate for their rising ARM.

  26. ndonahue says:

    @Chicago7: One reason some people (myself included) signed up for a 5/1 ARM is that on average, we don’t plan to live in particular house for more than a few years.
    When I took my ARM with a 1% raise / year cap, I calc’d that under the worst possible scenario (rate up 1% each year), I’d be saving money over a 30 year fixed for the first 88 months.
    The instrument isn’t the problem, the problem is that many people made bad/uninformed decisions.