Wednesday, Aug. 22, 2007

Jumbo mortgages are getting costlier

And that is hitting Montgomery, where the average house price is more than $600,000

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Naomi Brookner⁄The Gazette
Ed and Ruth Shaw have had their Gaithersburg house on the market since June and worry about higher rates for jumbo loans — those for more than $417,000. ‘‘Whoever buys our home will likely need a jumbo mortgage,” Ed Shaw says. ‘‘... We have a lot in the Philippines that we’ve already purchased and want to build on that as soon as possible.”
Rising interest rates for jumbo home mortgages — those for loans greater than $417,000 — have Ed Shaw worried.

Shaw has been trying to sell his five-bedroom Gaithersburg home since June. His real estate agent has had open houses, and Shaw himself has even shown the home, which lists for $549,999, to two people without an offer.

That’s a stark difference from a couple of years ago, when Montgomery County sellers were getting offers above their asking prices in a matter of days.

‘‘Sure, I’m concerned with the interest rates going up for jumbo mortgages,” he said. ‘‘Whoever buys our home will likely need a jumbo ever buys our home will likely need a jumbo mortgage. ... We have a lot in the Philippines that we’ve already purchased and want to build on that as soon as possible.”

The average jumbo 30-year fixed-rate mortgage in Maryland rose to 7.05 percent on Tuesday from 6.5 percent in mid-June, according to’s daily survey of the 10 largest banks.

Meanwhile, fixed-rate mortgages for home loans less than $417,000 have dropped. A 30-year fixed-rate mortgage in Maryland was down to 6.22 percent Tuesday from 6.4 percent in mid-June, according to

The average home sales price in Montgomery increased to more than $600,000 last month, according to Metropolitan Regional Information Systems. Counties with higher-priced homes are particularly affected by the change in jumbo mortgages, experts say.

‘‘Obviously, with the average home sales price in Montgomery County above $600,000, rising interest rates on jumbo mortgages is having an impact,” said Guy Cecala, publisher of Inside Mortgage Finance, a national industry newsletter in Bethesda.

Cecala said he knew people who went to the closing table only to discover that the interest rates on their loans had ballooned by as much as 2 percentage points. ‘‘That makes you have to rethink your purchase,” he said.

The global credit crunch, which initially targeted subprime loans to high-risk borrowers, has spread to mortgages that are not government related, such as jumbo mortgages, Cecala said. ‘‘There is an investor aversion to any mortgage product that is not government related,” he said.

Many people in the industry think the rising jumbo rates will be short-lived, Cecala said. ‘‘There is a feeling that maybe it will take care of itself,” he said. ‘‘But that’s not certain.”

Some trying to avoid jumbos

Buyers and sellers are taking steps to avoid having to take out jumbo mortgages. Those include knocking down the sales price low enough that buyers can put up enough money as a down payment to qualify for a smaller loan, and taking out home equity loans to make up the difference between $417,000 and the home price.

‘‘But there is only so much you can do,” Cecala said. ‘‘No one wants to knock the price down $50,000. And even doing that will probably not help much in Montgomery County.”

Marc Infeld, a Realtor with W.C. & A.N. Miller Realtors, a Long and Foster Real Estate company, said the impact of rising rates on jumbo mortgages is substantial. ‘‘It’s cutting out a large segment of buyers,” said Infeld, who sells in Montgomery County and elsewhere.

The situation could have some positive effect if it helps weed out more high-risk borrowers, Infeld said. But it would also help if the Federal National Mortgage Association, a government-sponsored private company known as Fannie Mae, would increase the loan limit above $417,000, he said. Fannie Mae purchases those smaller loans and sells securities backed by those mortgages to investors.

Vanda Greenwood, an agent with Long and Foster Real Estate in Bethesda, said she hasn’t yet seen many problems with people having a hard time selling homes just because potential buyers can’t get jumbo mortgages. But she has witnessed more people choosing to rent as housing prices continue to rise.

The owner of a home on Longdraft Road in Gaithersburg who declined to give her name said she tried to sell the home as an investment for about a year and is now attempting to rent it. ‘‘The market has been unforgivable,” she said.

Slowing down

The average number of days existing homes remained on the Montgomery market rose to 68 last month from 49 in July 2006, according to Metropolitan Regional Information Systems.

That is similar to the increase seen in Howard County, another high-priced market. But it is well below what is seen in Talbot County, which has the highest-priced homes in the state. There, homes remain on the market 146 days before selling, compared with 133 days a year ago.

Home sales in Montgomery County continue to slow, as they dropped for the sixth consecutive month in July from the same month a year ago. In the first seven months of this year, Montgomery home sales declined by 16 percent from the same period in 2006, slightly less than the drop for Maryland. Last year, home sales decreased by 20.5 percent in Montgomery after a 4 percent decline in 2005.

In many Maryland counties, including Prince George’s, Frederick and Anne Arundel, the drop in home sales has resulted in prices falling. But that has not been a trend in Montgomery and other higher-priced counties.

‘‘A lot of high-priced homes are selling,” Infeld said. ‘‘It still depends on location.”