As readers may know, Fannie Mae and Freddie Mac are stockholder-owned corporations that, according to their websites, purchase mortgage loans complying with certain guidelines. Those mortgages are then packaged into securities that investors can purchase.
In the wake of the housing crash, the underwriting guidelines of Fannie Mae and Freddie Mac remain strict. For conforming loans — those that adhere to the guidelines set forth by Fannie Mae and Freddie Mac — there is typically a maximum loan amount, certain borrower credit and income requirements, and other requirements such as a minimum down payment.
Yet not all mortgages are conforming. Jumbo loans are mortgages that exceed the maximums set by underwriting guidelines. In many markets that nonconforming threshold is $417,000, although it can be even higher in luxury markets.
According to a recent article, although the conforming loan market remains conservative, lenders may be relaxing some of their rules for jumbo loans. For example, jumbo borrowers that may not meet all of the credit score or income documentation requirements may nevertheless be approved if they can compensate in some other way. Some of those alternative showings might be a large amount of cash in reserve, capital gains from stock as income, or recently self-employed borrowers with a long history in an industry.
In any context, however, the process of qualifying for a mortgage can be technical and complex. With the help of a real estate attorney that focuses on mortgage financing, borrowers may be able to reduce some of their anxiety about understanding all of the fine print in their loan documents.
Source: The New York Times, “Lenders Easing Up on Jumbo Mortgages,” Lisa Prevost, May 29, 2014