Jumbo Loans: They Should Get Some Refi 'Love' Too

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CNBC.com

I’m not exactly sure why jumbos seem to be in the news this week. Two different articles, one in the Washington Post and one in the Boston Globe, show seeming surprise at the fact that jumbo loans are far more expensive than conforming loans. Hello?

We’ve been talking about the wide differential in interest rates on jumbos versus conventional ad nauseum for the last several months. Jumbos are north of 7 percent now, while conventionals are hovering around 5 and even under. And then of course there’s that grey area of they newly invented jumbo for higher-priced markets. That limit is now $625,000 thanks to new legislation that kicked in on New Year’s Day. Some call those “conforming jumbos” (kind of like jumbo shrimp, if you get what I mean). Anyway, interest rates there are higher than the historic conforming limit ($417,000) but not nearly as high as the jumbos.

So why all the talk now about the poor jumbo borrowers who can’t be a part of this heady refi boom we’re seeing on the conformers? Well, I’ve got two guesses: one is that Congress is headed back into session and the Chairman of the House Financial Services Committee is calling for another raise in the limits.

And then there’s that very troubling little fact that high-end prime loans are starting to default at a faster clip, thanks to job losses and plummeting home prices. Million dollar homeowners are in the same boat as subprime borrowers, but they’re axed out of the refis because they’re not going to get a break on rates.

So should the Feds start buying up jumbo loans the way it’s buying all those conforming loans now? I mean that’s what lowered the conforming loan interest rates. Should owners of swankier homes be cut out of the bailout? Well, I hear the arguments now: No way should the government bail out the millionaires. But let me argue back for a second.

At the height of the housing boom, the median home price in California was about $100,000 above the conforming loan limit. While that’s not exactly the case now, thanks to plummeting house prices, that doesn’t change the fact that many, many middle class California homeowners have jumbo loans on very average type homes. I myself have a jumbo loan on a very basic three-bedroom house in DC that did not cost a million dollars. Why shouldn’t I get the same refi benefits as someone who bought a much bigger house in, say Kansas City, where the median home price is far lower?

I guess I’m just saying that in most major metropolitan areas it costs a whole lot more than $417,000 to live in a very basic home. Am I being selfish? Don’t think so. My point is that there are plenty of hardworking American families in major metropolitan areas that could use the same break on their loans that hardworking families in lower cost areas are getting now. Look, we’re still paying more on the larger principal, so it is apples to apples.

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