Jumbo loans, or nonconforming loans, are loans that exceed certain limits, like $625,500 in expensive markets. Those limits are set by Fannie Mae and Freddie Mac, who buy conforming loans and sell them to investors. During the economic contraction it because harder to get a jumbo loan but recent data suggests the jumbo loan market is coming back to life.
According to an article in the New York Times, one estimate is that the number of lenders making jumbo loans has increased 20 percent from 2009, when just a few banks were making them. In particular, there are competitive loans available in the $2 million range, where down payments can be 30 to 40 percent. In the first quarter of 2012, banks made $63.8 billion in jumbo loans, which was an 18 percent increase from the first quarter of 2011. According to Inside Mortgage Finance, jumbo loans were 16.8 percent of al loan originations, up from 9.9 percent for all four quarters of 2009.
Why the change? The jumbo market is dominated by wealthy individuals who generally have higher credit scores and higher down payments, which translates into less risk for the bank. Also, because the wealth among wealthy individuals can come from many different sources- a job or a trust fund, for example- the loans tend to me more uniquely tailored.
Jumbo Loans
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