According to the National Association of Realtors, sales of properties worth over $750,000 have considerably increased in the past year. Reuters reports that the recovery in the luxury real estate market is likely attributed to jumbo mortgages. A jumbo mortgage is riskier for lenders because a luxury residence is harder to sell in the event of a default. Generally, jumbo mortgages are for over $417,000. Jumbo mortgages were rarely found after the real estate crisis.
With the market more stable, lenders are more willing to make jumbo loans to highly qualified borrowers. These large loans are too big to qualify for purchase by federal agencies like Fannie Mae and Freddie Mac, but private secondary market investors are once again becoming interested in these higher yielding loans. Jumbo loans are being offered at interest rates that are barely higher than conventional mortgages.
Jumbo loans were as high as 1.8 percentage points above conventional mortgages in 2008. Today, similar to pre-financial crisis rates, jumbo loans are only .23 percentage points higher than conventional mortgages. The increased interest from the secondary market is important for the luxury real estate market because banks may run out of cash to lend for jumbo mortgages. In 2012, the average jumbo loan was $1 million.
Although the number of jumbo loans has increased recently, they are still not near the 2007 levels. While participation from the private secondary market should continue to increase, mortgage regulations that start in 2014 may limit lenders. Lenders are already only giving jumbo loans to highly qualified borrowers and new Consumer Financial Protection Bureau rules may increase the standards.
Schecter Law has represented buyers, sellers, brokers and developers in connection with the acquisition, development, and sales of luxury residential real estate since 1976. The real estate industry in South Florida is fraught with potential land mines that only seasoned real estate attorneys are equipped to successfully navigate. At Schecter Law, our attorneys will represent the client throughout the entire real property transaction, from real estate financing assistance to the providing of title insurance.