A Spotty Uptick For Jumbos
Even as the housing markets in many areas struggle and decline in the face of ongoing high unemployment, some credit unions have continued to offer mortgages for some of the biggest residential sales.
Such large mortgages, jumbo loans, are too large to conform to standards set by Fannie Mae and Freddy Mac for the secondary mortgage market.
For most areas in the U.S., jumbo mortgage loans are those above $417,000 and above higher limits in some areas that are designated as high-cost metropolitan areas.
One such area is San Jose, Calif., where the $1.45 billion Technology Credit Union has enough members needing large mortgages that the CU has announced it is offering fixed-rate mortgages of up to $3 million dollars.
"It's no secret Bay Area housing prices and the cost of living are amongst the highest in the nation," said Steve Donahue, vice president for mortgage origination for Tech CU. "This loan product was created for members with good credit who want to refinance or purchase an upper end home and enjoy the benefit of fixed payments."
The credit union cited information from the real estate monitoring firm DataQuick Information Systems that showed 33.2% of all sales in the Bay Area for the month of December were priced at $500,000 or more. Over the past decade, a monthly average of 44.9% of homes sold for $500,000 or more, the CU said.
Technology's field of membership includes the seven counties that make up the San Francisco Bay Area, a region known for high real estate values and a competitive real estate market.
Demand for large mortgage loans dropped off as the real estate market in the area cooled during the downturn, Donahue reported, but as the market began to pick up again, housing prices stabilized and began to trend higher. And even at their lowest, his region's home values remained higher than they were in many other parts of the country.
According to DataQuick information, a median price of $375,000 in December 2010 paid for all new and resale houses and condos in the Bay Area. This is down 1.3% from $380,000 during both November and December in 2009. A peak of $665,000 was reached in June and July 2007, while the median hit a low of $290,000 in March 2009.
Donahue reported that although the credit union had not yet issued any $3 million mortgages, it had been doing about one $1 million mortgage per month for more than a year.
One of the most recent mortgages for over $1 million had gone to an executive with a technology firm that Donahue declined to name. In that mortgage, the member had put down more than $750,000 in cash on a $1.7 million mortgage.
Donahue said the CU had found investors who expressed interest in buying the jumbos in batches of $10 million, but indicated the CU was not in a hurry to sell them for now, in part because credit union-issued mortgages do not bring as strong a price as they have in the past.
But not every credit union that offers jumbo mortgages has seen the same uptick in demand. The $2.2 billion Tower Federal Credit Union, Laurel, Md., has offered larger-than-conventional mortgages throughout the downturn, and the CU has not seen the sort of increased demand that Technology has been seeing, according to Barry Stricklin, Tower's manager for real estate lending.
Stricklin said that at $45 million loaned out in 71 loans, the jumbo loans accounted for less than 10% of the CU's overall mortgage volume in 2010. He added that Tower had also decided to hold the jumbo loans, at least for now, in part because the pool of investors to buy the loans had declined, in part because the servicing of the loans is profitable and in part because the credit union wanted to keep in better contact with members.