The Curse of the Were-Rabbit!
After praising Floyd Norris, we are confronted with this!
In a Credit Crisis, Large Mortgages Grow Costly - New York Times: by Floyd Norris and Eric Dash: When an investment banker set out to buy a $1.5 million home on Long Island last month, his mortgage broker quoted an interest rate of 8 percent. Three days later, when the buyer said he would take the loan, the mortgage banker had bad news: the new rate was 13 percent. “I have been in the business 20 years and I have never seen” such a big swing in interest rates, said the broker, Bob Moulton, president of the Americana Mortgage Group in Manhasset, N.Y. “There is a lot of fear in the markets,” he added. “When there is fear, people have a tendency to overreact.”
The investment banker’s problem was that he was taking out a so-called jumbo mortgage — a loan greater than the $417,000 mortgage that can be sold to the federally chartered enterprises, Freddie Mac and Fannie Mae. The market for large mortgages has suddenly dried up.... Those with poor credit, whether companies or individuals, are finding it much harder to borrow, if they can at all. It appears that many homeowners who want to refinance their mortgages — often because their old mortgages are about to require sharply higher monthly payments — will be unable to do so....
The Wall Street investment banker who wanted a jumbo mortgage had a good credit score, and is not a subprime borrower. But private mortgage securities are now hard to sell, leading to his problem.... [T]he average jumbo rate is now 6.94 percent. The spread between the two rates [conforming and jumbo] rose from less than a quarter of a percentage point to more than two-thirds of a point. Jumbo mortgages are most important in areas with high home prices, most notably on the East and West coasts. “In California, it has shut down the purchase market,” said Jeff Jaye, a mortgage broker in the Bay area. “It has shut down the refi market.”...
Fannie Mae and Freddie Mac, the government-sponsored enterprises, can still purchase mortgages and issue securities, guaranteeing that the underlying mortgages will not default. Those guarantees are still accepted by investors, and borrowers who meet their standards — meaning they can get so-called conforming mortgages — still can borrow. But those who want larger mortgages, or cannot make down payments, face a harder burden...
The investment banker's problem is not that he is taking out a so-called jumbo mortgage. The investment banker's problem is that he--must be a he--was putting so little money down that the lender was not confident it could resell the house in two years for the amount of the mortgage if necessary, and the lender was also not confident that the investment banker would have a job in six months. As Norris and Dash say later on in the article: the average jumbo mortgage rate is 6.94%--not 13.
