A jumbo mortgage is required for any amount above $417,000. Most any home in one of the real estate bubble areas would need a jumbo.
Interest rates on jumbos have just gone psychotic. Why? Because no one wants the risk and thus are pricing them high.
Today Countrywide published their new matrix of mortgage quotes. Suppose you are a successful doctor with solid income, huge pension account and almost maximum credit score. You want to buy a new primary residence for, say, $800k (which would be very, very modest 3 bedroom home in my area). You are putting 20% down and can show 2 months worth of payments on your checking account. Obviously you document your income, this is a full-doc loan.
What is your rate? It will be 7.9% for 5/25 ARM loan.
Now the real estate game is over, whatever happened before today was just a preparation for what will happen next.
When an investment banker set out to buy a $1.5 million home on Long Island last month, his mortgage broker quoted an interest rate of 8 percent. Three days later, when the buyer said he would take the loan, the mortgage banker had bad news: the new rate was 13 percent.
The difference between those two rates, assuming 20% down, is $60,000 a year or $5,000 a month. The reason for such insane interest increases is not so much greed as it is fear. The credit markets are currently slamming shut.