Brokers Urge New Scale for 'Jumbo' Mortgages
STEVE INSKEEP, host:
Some mortgage brokers want to redefine the term jumbo loan. That's a home loan too big to be underwritten by the federally sponsored organizations Fannie Mae and Freddie Mac. In some high-cost housing markets, just about every new loan is jumbo, and that means borrowers pay higher interest rates, as NPR's Scott Horsley reports.
SCOTT HORSLEY reporting:
Just how big should jumbo be? Under federal law, Fannie Mae and Freddie Mac are not allowed to underwrite loans of more than $359,000. But that's not jumbo at all in a market like San Diego, where the average home last month sold for just under $500,000. San Diego's been one of the nation's hottest housing markets, but Michael Faust of the California Association of Mortgage Brokers says there are many parts of the country where the average home price is now in jumbo territory, from Barnstable, Massachusetts, to Ann Arbor, Michigan.
Mr. MICHAEL FAUST (California Association of Mortgage Brokers): This isn't just a California problem.
Mr. FAUST: The reality is this is a national problem.
HORSLEY: A problem, Faust says, because jumbo loans typically carry interest rates that are between 1/4 and 1/2 percent higher than loans backed by Fannie or Freddie. For a typical borrower in San Diego, that extra half percentage point costs $150 a month.
Mr. FAUST: Every dollar in savings can make the difference between homeownership and a lifetime of renting. Every taxpayer should have access to government-backed home loans, but today they don't.
HORSLEY: Faust and the Mortgage Brokers Association are backing federal legislation that would allow Fannie and Freddie to underwrite bigger loans. In the country's more expensive housing markets, the jumbo ceiling would be raised to 150 percent of the current level or the median home price, whichever is lower. Some lenders don't like that idea. Vice president Steve O'Connor of the Mortgage Bankers Association questions whether anyone who can afford such a pricy house is really the kind of person Fannie and Freddie are supposed to help.
Mr. STEVE O'CONNOR (Vice President, Mortgage Bankers Association): You're talking about someone with an income or a family with a gross income of over $140,000, and is that a low and moderate income family? Some would contend it's not.
HORSLEY: But it's not just the wealthy who are buying half-million dollar homes these days. The median price of a single-family home in California is now more than $540,000, and a report this week from the Public Policy Institute of California found many families with modest incomes are stretching financially in order to afford those high-priced homes. Scott Horsley, NPR News, San Diego.
INSKEEP: This is MORNING EDITION from NPR News. I'm Steve Inskeep.