In 2007, the housing crash hit real estate and the mortgage industry from multiple angles: homeowners with adjustable rate mortgages (ARMs) facing foreclosures, tighter lending standards, and higher interest, with the latter two resulting in fewer borrowers getting qualified, an increase in FHA loans, and jumbo mortgages stalling for roughly five years. Now, according to news sources, jumbo loans and ARMs have started to make a comeback.
Closer to Conforming Conventional Loans
Mortgage percentage points soared in the years following after the housing crash, thus making jumbo loans, well, an extreme luxury. But, a piece in the Chicago Tribune suggests, demand began increasing in 2012 as the result of lower interest and percentage points. For 2012, jumbo mortgages constituted $203 billion of all loans and are predicted to go up to $216 billion for this year.
Rather than feature higher interest compared to conforming conventional loans, jumbo mortgages are now just a 0.17 percentage point higher – down from a 0.5 percentage point a year ago.
Higher Fixed Interest
As we have detailed on this blog, 2012 and ’13 saw record low interest rates for 30-year, fixed-rate mortgages. Because of this, the appeal lessened for ARMs. However, as Daily Finance indicates, interest for fixed-rate loans climbed from 3.5 to 4.5 percent over 2013 – creating, in the process, a slightly greater demand for ARMs. As of right now, ARM interest flies just below three percent.
While mortgage activity concerning ARMs is sharply below its pre-2007 levels, the Mortgage Bankers Association pointed out it has reached its highest since 2008. As well, ARMs are a growing option for refinancing.
However, what Daily Finance fails to point out is, ARMs have gradually been going through changes over the course of 2013 to prevent another mortgage bubble and foreclosure crisis. Part of the new QRM rules, ARM revisions include the “ability to pay” standard, which takes the borrower’s background into account when the payments and interest begin to increase. Although some lenders already implemented “ability to pay” procedures, this and other changes officially go into effect by January 2014.