Commercial Loan Broker

Banks' Appetite for Jumbos May Soften Blow of New Loan Limits

June 28 (Bloomberg) -- When new lower limits on U.S. government-backed mortgages take effect Oct. 1, buyers of pricier homes may be forced into jumbo loans, which carry higher interest rates and require bigger down payments. The blow may be softened by banks seeking to expand their lending to affluent customers. Gigi Stone reports on Bloomberg Television's "In the Loop." (Source: Bloomberg)

Jon and Jenny Clyman are eager to buy a new home near better schools in New York ’s Westchester County before Oct. 1, when new limits on government-backed mortgages could force them into a more expensive jumbo loan.

“I look at it like a deadline because right now I can get more house for my money,” said Jon Clyman, a 37-year-old real estate broker whose wife is a controller at a bank. “I’m seizing the opportunity while it exists.”

The Peekskill, New York, couple may not need to rush. While jumbo mortgages used to buy pricier homes carry higher interest rates and require bigger down payments, the blow may be softened by banks seeking to expand their lending to affluent customers.

As competition picks up, lenders including Citigroup Inc. (C) , Bank of America Corp. (BAC) and Wells Fargo & Co. (WFC) are easing credit requirements and narrowing the gap on rates compared with government-backed loans. With deposits costing near zero and demand for commercial loans weak, banks and credit unions see an opportunity in high-end borrowers who haven’t suffered as badly as other Americans as foreclosures mount and unemployment hovers above 9 percent.

“We have shrunk our balance sheet over the last several years, not on purpose, but because we weren’t going to compete with the government,” said Monte Redman, who next month becomes chief executive officer of Astoria Financial Corp. (AF) , a Lake Success, New York-based bank with $18 billion in assets that specializes in jumbo and apartment-building loans. “There are a lot more community banks like us that are going to be there to take up the slack.”

The new limits, which will vary by locale, apply to loans backed by government-controlled Fannie Mae and Freddie Mac , the two largest mortgage-finance companies in the country, and the Federal Housing Administration . Together, they currently buy or guarantee about 90 percent of all mortgages. Starting in October, the maximum eligible loan will fall to $625,500 from $729,750.

Loan Broker vs Bank - Start Up Business Loans

Loan broker vs bank – which one is better? This is the very question that hounds most potential borrowers. While there are those who would readily go for either of the two, it is still very important to see what are their advantages and disadvantages. One very important thing to note though is that this is a question that has no “one size fits all” answer. This is because there are a lot of factors to consider when taking out a loan, among these are, of course, the credit rating of the borrowers.

For starters, a loan broker is somebody or an entity that acts as the go-between potential borrowers and lending institutions. While some potential borrowers would immediately see this as some sort of an added cost, others see loan brokers as their lifeline to getting the funds they need. There are many advantages in getting a loan broker when applying for a loan. One of these is that professional brokers have a broad and extensive knowledge when it comes to the best lending company or bank that can offer a suitable loan package.

Another great thing about loan brokers is that they can also help potential buyers a lot when it comes to the requirements and documentations needed by the financial or lending institutions. They can also do the initial legwork of gathering all the financial records of the potential borrower and matching them to banks or lending companies that may be able to accommodate their loan applications. While there are some loan brokers whose services end with the filing of necessary documents to the lenders, there are also those who see the potential borrowers through the entire loan application process. The mode of payment of their professional fees also vary with many of them getting a certain percentage from the bank upon granting of the loan, while some have their own preferred method of being paid.

Again, the answer to this question depends a lot on the financial credibility and trustworthiness of a potential borrower based on the viewpoint of a bank or lending institution. It cannot be denied that since the mortgage fiasco a couple of years ago, banks have started to be more stringent with their loan requirements, as well as whom they approve.

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