Crisis Spreads Into Jumbo Mortgage Industry
The evening before their home purchase was to close, Gary Becker and his wife, Amy Dacus, learned their Washington mortgage to buy a Woodinville residence had evaporated.
Unlike subprime borrowers defaulting on loans, the couple had a stellar credit score, a 20 percent down payment, strong employment history and had effortlessly purchased three prior homes.
But their new home’s $670,000 sales price was large enough to require a jumbo loan, so named because it was for more than $417,000, the limit the nation’s largest mortgage backers will fund.
Their California mortgage broker had unexpectedly lost its ability to provide jumbos — an event being repeated by lenders nationwide as the underlying funding for these large loans grows scarcer.
“The sellers assumed we were a credit risk, which wasn’t the case, and were reluctant to allow us extra time,” Becker says.
In the last several weeks, the national mortgage crisis has spread beyond the subprime market to jumbo loans. This serious crack in the underpinnings of the mortgage industry threatens to stall home sales in the Seattle housing market area, starting a chain reaction that eventually could impede sales all the way down to entry-level buyers.
Nearly half of the single-family houses for sale in King County, plus 21 percent of the condos, have sales prices high enough to require jumbo loans — and that’s if buyers reduce their loan amount by putting 20 percent down.
Becker and Dacus and their children, ages 3, 5 and 7, had moved from Northern California so Becker could take a job as a senior business analyst with Microsoft. Now it was Aug. 5 — the beginning of the week the jumbo-mortgage crisis erupted because a skittish Wall Street turned off the mortgage-money spigot — and their home buying plans were in peril.
They’d spent their first five weeks here cooped up in a temporary third-floor apartment and had to be out in two days. Their furniture, on a moving van, was set for delivery to their new house soon thereafter.
Moreover, their $15,000 earnest money would be lost if the sale evaporated because they couldn’t immediately find a replacement mortgage loan.
“Basically our plans blew up,” says Becker, recalling the start of a sleepless night with much hanging in the balance, and “no idea what was going to happen next morning.”
The next day, their real estate agent, Ryan Rockwell of Coldwell Banker Bain, saved the deal by arranging an extension from the sellers and convincing a loan officer he knew that the couple was “more than qualified.”
Hours later, Suzie Sparks, with Landover Mortgage in Bellevue, secured them a new jumbo mortgage.
“This is not the first deal I’ve seen that’s shaky,” Sparks says. “We hear it every single day from real estate agents.”
To get the same interest rate, 6.75 percent, that their original lender had quoted, Becker and Dacus opted to pay $2,800 in cash, the equivalent of a half-point (a point being 1 percent of their loan amount) to buy down their interest rate from the 7.25 percent that Sparks found for them.