With overnight bank funding rates near zero, investors are flush with cash — liquidity they are using to compete with Fannie Mae and Freddie Mac on the secondary mortgage market.
Investors that would typically deal with jumbo loans are creeping into Freddie and Fannie’s territory, financing smaller loans below the agencies’ dollar cap for mortgages, according to a column in the Los Angeles Daily News.
Borrowers can now get a 30-year fixed-rate jumbo mortgage for $2 million at 2.65%, a better deal than what Fannie might offer, the column noted. And they can borrow without mortgage insurance by making at least a 10.1% down payment on loans ranging from about $550,000 to $2 million. Fannie and Freddie, known as government-sponsored entities or GSEs, require insurance.
Private lenders are offering loan-to-value limits of 89.9 percent versus Fannie’s 80 percent. Non-owner-occupied pricing for 30-year fixed-rate loans starts at 2.75 percent, whereas the government-backed companies are offering 3 percent to 3.5 percent for a mortgage of that length, the column reported.
To facilitate approvals, investors are also doing away with antiquated underwriting rules. Some lenders are requiring only one year of tax returns to qualify for a loan rather than the two years preferred by traditional jumbo underwriting.
They also sidestep fees and restrictions such as loan level pricing adjustments and other bumpers imposed by the Federal Housing Finance Agency, which oversees Fannie and Freedie.[Los Angeles Daily News] — Suzannah Cavanaugh