One of the main reasons for the slower pace in the sale of higher-priced repossessed houses for sale is the difficulty in obtaining jumbo loans.
Unlike during the housing boom when banks readily granted jumbo loans, many banks have stopped providing jumbo loans because they are not qualified under the guarantee programs run by Freddie Mac and Fannie Mae.
The two government-sponsored enterprises limit their guarantees to jumbo loans not higher than $729,750 in high-cost markets, wiping out opportunities for higher-income families to move up during this time when there are a lot of higher-end repossessed houses for sale at big discounts.
The conforming loan limits are even lower in low-cost markets, with guaranteed loan amounts ranging from $417,000 through $729,750. Besides, the $729,750 limit for high-cost markets is set to drop back to $625,000 in January next year.
David Adamo, CEO of Connecticut-based Luxury Mortgage, said home loans are available for the extreme ends of the market - the low-cost and the high-cost markets. He explained that borrowers with yearly incomes of about $250,000 can obtain home loans guaranteed by FHA while very wealthy people can borrow from private banking corporations.
But home loans ranging from $250,000 to $500,000 in middle and high-end markets are difficult to obtain especially for families living in areas where starter homes are priced at about $1 million.
When large numbers of repossessed houses for sale battered the mortgage markets, most lenders stopped originating conventional home loans and jumbo loans because of fear of further losses.
For prospective home buyers who are seeking jumbo loans to take advantage of attractively-priced repossessed houses for sale in high-cost communities, there are some banks offering jumbo loans to qualified borrowers. Two of these are community banks Astoria Federal Bank and Hudson City Bank in New York, which use their own money to provide the loans and do not sell the loans to outside investors.
These banks offer jumbo loans only to borrowers who pass their stringent qualifications. Before the housing crisis, they accepted five-percent down for jumbo loans, but now they require 25 percent down, six months of advance monthly payments and a credit score of 700.
For jumbo loans higher than $1 million, mortgage borrowers must make a 30-percent down payment. Additionally, Astoria offers only adjustable-rate mortgage arrangements for jumbo loans.
However, Astoria executives said that the current level of mortgage rates and prices for repossessed houses for sale are particularly advantageous for qualified home buyers.
