Redwood Trust Inc. announced Friday that it would partner with Citigroup to issue the first new mortgage-backed bonds in the jumbo mortgage category since 2008. That means more money flowing to lenders in this category, which includes loans too big to be backed by Fannie Mac and Freddie Mac (typically, loans over $417,000 in most markets, but up to $729,750 in some markets now). Interest rates on these big loans have fallen to 5.5 percent this week; they hit 7.95 percent at the height of the financial crisis. Moreover, the spread between jumbo loans and regular loans has fallen sharply, according to Bankrate.com.
Houses are moving, too. Sales of homes worth more than a million dollars rose more than 35 percent in February over February 2009, the National Association of Realtors reported. And the Hamptons are buzzing: There were 28 sales of $5 million-plus homes there in the first quarter, double the amount of the same period last year.
What's it to you? The thaw will likely be slow, so there's no need to rush into or out of anything. But consider these angles:
- Multifamily houses might move more easily. You may think of these spacious big homes as being for those still stuck on McMansions. But there's been a trend several generations moving in together -- those boomeranging young adults and aging parents all coming home to roost with the sandwich generation. A $1 million home might seem pricey if it's just for you and your cat. But it may be more affordable to buy (and an easier sale, too) if Grandma is kicking in some cash. If you're selling, stop converting bedrooms to offices and media rooms.
- Finally, a refi opportunity. If you've been stuck in a big, bad loan since 2007, now is your chance to grab a better deal. Refinance rates on jumbos are dropping, too, and you can lock up a big, fat 15-year fixed-rate loan for 5.03 percent, reports MortgageMonitor. That's a great deal.
- The bonds are back, too. As Citi and others start to issue mortgage-backed bonds, investors may consider buying them, perhaps via a mutual fund . The pros? These bonds really should be safer than the lousy loans that were being packaged at the height of the credit bubble; these loans have gone to borrowers that didn't borrow the full amount of their homes and that have extremely high and secure incomes. But there's a con, too: The yields on these loans is currently 3.75 percent. As mortgage rates rise, the value of these bonds could fall, and higher-yielding securities could become available.
- Buyers needn't rush. The luxe home market has been frozen for close to two years, so there are probably plenty of them waiting to come to market and there's little evidence their prices will recover anytime soon. Furthermore, recoveries tend to show up in housing well before the job market stabilizes. So you can and probably should take your time shopping slowly unless your job is very secure. At least the house tours will be fun.
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