The jumbo loan is making a comeback, a welcome trend for Bay Area homebuyers and one more sign the housing market is reviving.
Jumbos -- home-purchase loans above $625,500 in the Bay Area -- are vital for this high-priced region, but had all but disappeared during the credit crunch as eroding home values scared lenders off.
Now the rebound in home prices has given lenders more confidence about making these loans. At the same time, the spread between the interest rates for jumbos and the rates for smaller loans has narrowed, making them a less costly option for homebuyers.
"It's getting back to normal," said Andrew Soss of Stewart & Soss Mortgage in San Jose. "We've seen a pretty big increase in requests for jumbo loans."
After a sharp drop last year, loans greater than $625,500 have bounced back in Alameda, Contra Costa, San Mateo and Santa Clara counties in the past 12 months, according to DataQuick, rising from about 8 percent to 13 percent of Bay Area home loans. San Francisco has seen an even bigger increase in jumbos, from 18 percent to almost 33 percent of all loans.
RPM Mortgage in Walnut Creek said it expects to do 35 percent of its 2013 business in jumbo mortgages, up from 10 percent this year. In 2011, jumbos were just 5 percent of RPM's business, said CEO Robert Hirt.
"The high-end homes market is reviving because buyers feel the combination of good prices and low interest rates make today a good time to buy," said Wells Fargo spokesman James Hines. "The availability of low-rate jumbo loans, therefore, is enabling these consumers to buy homes and finance them."
Fannie Mae and Freddie Mac acquire loans from banks, allowing the banks to make more loans. But the companies are restricted by law to purchasing single-family mortgages with origination balances below what's called a "conforming loan limit." Any loan above that limit is a jumbo.
In 2008, to boost the flagging housing market, Congress raised the loan limit from $417,000 to $729,750 for high-cost areas like the Bay Area. That was lowered in October 2011 to $625,500 for Fannie Mae and Freddie Mac. The limit for loans from the Federal Housing Administration was unchanged, but FHA loans are typically for first-time buyers with lower credit scores and smaller loans.
The interest rates for jumbos are also now close to those of conforming loans.
For example, Star One Credit Union in Sunnyvale last week offered a 30-year fixed-rate jumbo at 3.875 percent with no points; what it calls a conforming "high balance" loan of $417,000 to $625,500 at 3.625 percent; and one below $417,000 at 3.5 percent. That's a difference of only a quarter of a percent between the high balance and the jumbo loan. At the worst of the credit crunch, the spread at some lenders was 1 percent or more, according to the online real estate company Zillow.
"The spread has narrowed and we're seeing more jumbos," said Joe Fagenstrom, vice president of marketing at Star One.
"Rates on jumbo loans are at record lows," said Greg McBride of the website bankrate.com. "You're also seeing better credit availability on jumbo loans, as lenders realize these borrowers are good customers to have on the books."
But a 20 percent down payment, great credit score and a good income are required to qualify.
If you don't have a credit score over 800, "they don't want to talk to you," said Suzanne Yost, president of the Silicon Valley Association of Realtors, who says lender requirements are still frustrating.
Contact Pete Carey at 408-920-5419. Follow him at Twitter.com/petecarey.