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Return of the jumbo

ALBUQUERQUE, N.M. — The housing bust decimated big-dollar loans, but they’re beginning to make a comeback

(Journal illustration by Cathryn Cunningham)

(Journal illustration by Cathryn Cunningham)

When the New Mexico and U.S. real-estate markets were booming, jumbo loans for pricey properties, even in the Albuquerque metro area, were fairly common.

Mike Koller, a mortgage loan officer with Pinnacle Capital Mortgage Corp. in Albuquerque, said he used to successfully complete one or more a month in 2008.

“And that’s in an area where there really aren’t all that many $1 million homes on the market,” he said.

A jumbo loan doesn’t have to be that high. Actually, special rules for jumbo loans kick in at $417,000.

But that all changed when the housing bubble burst.

“It was one of the markets that was hit the hardest,” said Spence Llewellyn, branch manager for Llewellyn Mortgage. “With values dropping there just wasn’t the loan-to-value necessary to make the loans happen.”

By 2010, Koller said he was down to about one per quarter or less.

Not surprisingly, Albuquerque was following a national trend as lenders adopted tighter standards with their capital, making loan requirements more stringent.

That trend, however, is beginning to reverse, according to the National Association of Realtors.

Nationally, sales between $500,000 and $750,000 are up 24.2 percent from a year ago, according to June association statistics. And in the West, it’s even higher at 28.8 percent. Nationally that price range represents 8.1 percent of all home sales.

“Certainly, the appetite for jumbo loans is increasing,” Llewellyn said. “The industry is looking favorably on jumbo loans again.”

Some of that can be attributed to the perception that the economy is finally starting to rebound, said Anneliese Elrod, senior vice president for strategy and development with New Mexico Educators Federal Credit Union.

“People are seeing an economic light at the end of the tunnel,” she said. “Locally it’s been a little slower than the rest of the country. But overall, it’s starting to swing the other way for jumbo loans. The housing market as a whole is starting to rebound.”

As far as the higher-end loans go, the fact that there are even loans available is a good indication that the market is improving, Koller said.

He’s now back up to about one jumbo loan per month, well short of the 2007-08 heyday, but significantly better than even a year ago.

“The market is opening up quite a bit,” he said. “It’s a lot better than it has been any time since 2008.”

With the real-estate slump, many owners of expensive homes suffered through significant devaluations of their houses, leaving them facing negative loan-to-value situations.

Now that values are starting to climb, refinance options are becoming available again as well, he said.

But a big factor, Koller added, was more investors willing to take on the larger loans again.

“There are more players on the market right now,” he said. “When there are more investors that will back jumbo loans, it entices competition.”

And that means that the investors are willing to relax their standards somewhat, Llewellyn said.

For instance, jumbo loans used to require two appraisals, Llewellyn said.

And interest rates, while low, were significantly higher than standard loans, he said.

To get around that, some borrowers were actually taking two loans, one standard and the other essentially a home-equity loan, Koller said.

“That was the best way to stretch a loan,” he said.

Now those homeowners are able to roll their two loans into one jumbo loan with a fixed interest rate.

What’s more, investors have relaxed their financing ratio, underwriting as much as 90 percent of the home’s value, Llewellyn said, which has opened the doors for more buyers.

“Investors are more comfortable lending larger dollar amounts now,” he said.

None of this means that just anybody can qualify for a jumbo loan, they said. There are still some significant hurdles that will restrict the number of people who can qualify.

For borrowers seeking jumbo loans for that grand home of a lifetime, there are still many strict requirements. They need to prove a high income with a top-notch credit score. Investors still need to make sure borrowers are a good risk and debt-to-income ratio is also examined closely.

Underwriters are looking for monthly mortgage payment that does not exceed 38 percent of the borrower’s pre-tax income.

“We don’t see a lot of jumbo loans,” Elrod said. “But we’re doing a lot more of them than we have for some time. It makes up maybe five to 10 percent of our loans.”

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