More bad news for JUMBO loansMay 13, 2011
Just when you thought it was safe to jump back into the water…oh the dread.
I’m not really talking about sharks in our oceans – I am talking about the jumbo loan sharks and the debacle that is looming. Looks like the federal government is going to take a hard line on these jumbo loans and really cut off the people in the $500,000 to $1M loan category at the knees. Be prepared for a bucket load of strategic defaults with Sellers jumping overboard.
It is getting harder and harder to get any loan. But now Congress is working to get out of the high-end market (so called “jumbo” loans) and try the new “private banking” rescue of our homes for luxury properties. The result for many will be higher cost loans and fewer buyers for more expensive properties. To be clear, there are buyers and sellers in this price range but they can’t do it without a loan at this “mid-range” luxury price point.
In homes priced over one million, we see more cash buyers. But I call this mid-range group ($500K – $1M) as being in real estate purgatory. They are losing hope and they are losing hope fast.
Michael S. Barr, a former assistant Treasury secretary, said the federal government’s retrenchment would be painful for many communities. “There’s always going to be a line, and for the person just over it it’s always going to be an arbitrary line,” said Mr. Barr, who teaches at the University of Michigan Law School. “But there is no entitlement to living in a home that costs $750,000.”
The problem with this logic is that it will trickle down and affect the entire housing industry. This is the start of some difficult times in the lending market and I believe we may witness many people bailing out of these homes to become renters. Watch for an increase in strategic defaults. I’m already seeing it from the perspective that I have more tenants on hand than high-end buyers. This could be catastrophic.
I don’t see private banking coming to the rescue. Why? Because the federal government is still going to tightly control bank reserves which further decreases loan availability. I would love to see someone with some real economic credentials figure out how badly this new policy could affect our ENTIRE housing industry.
In short, this could blow a lot of people out of the water. Sending out an SOS…