As the sale of high-end and luxury homes went up in the housing market in the last couple of years, the number of jumbo loans also escalated, thereby lending another strong signal of the market’s revival.
Jumbo loans, which are considered more profitable, are not covered by the federal government. Though they have high interest rates these loans make up significant percent of all mortgages for lenders. For instance, Tellmenews.com reported, that Wells Fargo’s volume of jumbo mortgages saw a two-fold increase in the first half of 2012.
On the whole, the entire jumbo mortgage lending industry lent out approximately $38 billion this year, an increase of 65 percent over the numbers from last year, the website quoted Inside Mortgage Finance.
"This is a real positive for the entire marketplace, and hopefully this is the first sign that credit markets will open up," Jack McCabe, an independent housing analyst in Deerfield Beach, Fla., told the Wall Street Journal.
For a lender, the appeal of jumbo loans is largely due to its profitability, Frank Donnelly, president of the Mortgage Bankers Association of Metropolitan Washington, told the WSJ. Private jumbo mortgages provide a bigger-than-usual spread between the interest banks receive and what they are paying on deposits.
As for borrowers, their main appeal lies in low rates. Over the past couple of years, the mortgage rates have seen significant drops. A 30-year jumbo mortgage, for instance, is now at 4.22 percent. Last year it averaged 4.82 percent and in 2010 it was at 5.27 percent, Tellmenews.com reported.
