Another try
Freddie Mac and Fannie Mae attempt to kick-start a federal program and revive high-priced housing markets by encouraging lower interest rates on jumbo mortgages
The nation's two largest mortgage investors yesterday stepped up their efforts to revive housing markets in high-cost cities, with one promising to provide up to $15 billion to lower interest rates on jumbo home loans.
The move may rescue a program, passed by Congress in February, that has been widely viewed by lenders and mortgage brokers as off to a poor start because it did not lower rates on jumbo loans enough to make them attractive to borrowers. Some lenders and loan brokers said they had not made a single loan under the program.
In February, Congress increased the size of mortgages that Freddie Mac and Fannie Mae are permitted to purchase from $417,000 to $523,750 in the Boston region - and higher in more expensive markets. The purpose was to reduce interest rates on loans in that category. At the time, interest rates on jumbo mortgages were more than 2 percentage points higher than those eligible for purchase by Freddie Mac and Fannie Mae.
Yesterday, Freddie Mac said it expects to buy up to $15 billion of so-called jumbo conforming loans from major lenders, including
None of the banks were able to provide rates for the jumbo conforming loans. But Tom Kelly, a spokesman for Chase, said the Freddie Mac agreement "is going to make more money available in high-cost markets and the rates are obviously going to be less" than those for loans above the new upper limit.
David Gravelle, a mortgage broker with Family Choice Mortgage Corp., welcomed the new infusion of capital into that layer of the market. "That's not a ton" of money, he said, "but it's definitely a major step in the right direction."
Also yesterday, Fannie Mae said it had begun providing price quotes to lenders and said it required rates on jumbo conforming loans to be about four-10ths of a percentage point higher than for traditional conforming loans.
So far, though, bankers and mortgage brokers said that the rates for loans between $417,000 and $523,750 remain nearly a full percentage point higher than traditional conventional loan rates, too high to provide much advantage to borrowers.
Brokers and lenders said they had been under the impression the rates on the larger loans would be as low as existing rates on loans less than $417,000 - currently around 5.875 percent for a 30-year mortgage. Instead, the rate is around 6.75 percent for loans between $417,000 and $523,750.
"They defeated the purpose of helping the average consumer trapped in an adjustable-rate mortgage" who wants to refinance, said Thomas Marroni, president of New Boston Mortgage Corp. Jumbo loan rates - those now above $523,750 - are higher still at around 7.25 percent.
Freddie Mac and Fannie Mae can purchase these larger loans that are originated between July 1, 2007, and the end of this year. That gives lenders the option of either selling existing loans in their portfolios or making new ones. Freddie Mac's spokesman, Brad German, said the bank agreements will include both loans in their portfolios and new loans they originate.
But the program has numerous other barriers, in addition to high rates. The two agencies have placed steep fees and qualifications on the new loans that further limit their availability. For example, to qualify for the best rate, Freddie Mac requires borrowers to have a 720 credit score, compared with a 680 score for loans $417,000 and under.
Rosemary O'Neil, vice president of Norwell loan broker Conway Financial, said the program has not permitted refinancings by people who bought a house using two mortgages - "piggyback loans" - a popular strategy during the housing boom.
"A good amount of people out there are in that scenario," O'Neil said.
Homebuyers such as Peter and Catherine Rowden didn't benefit either. The couple recently found their ideal second home, in the Robbins Wharf condominium development on Plymouth Harbor. They have no mortgage on their primary residence in Groton, and their mortgage broker wanted to use the new program to finance the $740,000 waterfront property - they would get a $523,750 mortgage and pay cash for the rest. But Gravelle, their broker, said the couple would have to make a very large down payment - 40 percent is required for second homes - to get the best interest rate. Rowden, a Hologic Inc. executive, didn't want to lay out that much cash. Gravelle said the Rowdens got a better rate by taking out a traditional 15-year conventional loan for $417,000, with a 5.625 percent rate. They then secured an adjustable-rate home equity loan for $150,000, with a current rate of 5 percent, for the remaining financing.
Other obstacles include requirements by the agencies that buyers must make larger down payments if they are in a market where home prices are declining. Mortgages between $417,000 and $523,750 require 15 percent down payments in declining markets, compared with 10 percent for loans under $417,000. The new loans also require lower debt-to-income ratios - 45 percent, compared with about 51 percent for traditional loans.
"The politicians and big banks put out some sizzle," said Gravelle. "Then they start backfiring with all the details."
Kimberly Blanton can be reached at blanton@globe.com. 
