In July 2010, Rebecca Blouin and Bryan Mills looked into refinancing the jumbo mortgage on their four-bedroom 1940s Colonial in Wellesley. They gathered together pay stubs, bank statements, and investment account balances.
But then their home appraised for $100,000 less than they paid for it in 2007, requiring them to bring $75,000 to the closing. They explored selling, but ultimately came up with the additional cash, finally completing the refinancing seven months after they began.
A little more than year later, with rates even lower, the married couple refinanced again. This time, the appraisal and approval process went off without a hitch, taking only three months to close on the loan. “They weren’t so stringent this time around,” said Blouin, 40, a marketing executive and mother of two. “They’re a little freer giving out loans now.”
This experience highlights the thaw in the market for jumbo mortgages, or loans over $417,000, and the general easing of credit conditions as the economy and housing sector improve. The number of jumbo mortgages approved in Massachusetts by lenders nearly doubled last year from 2010 and is on pace this year to exceed 2011’s total of almost 14,000 loans, worth a total of nearly $10 billion, according to Warren Group, a Boston firm that tracks real estate.
The trend is good news for the Massachusetts housing market, which has some of the nation’s highest home prices and greatest demand for jumbo mortgages.
It’s one factor in the rebound in Massachusetts home sales, which in July reached their highest monthly volume since 2005.
Jumbo loans accounted for about 9 percent of mortgage applications in Massachusetts in July, compared with about 6 percent nationally, according to the Mortgage Bankers Association, a trade group in Washington, D.C.
“One of the key reasons for the improvement in housing is that credit is becoming more available,” said Mark Zandi, chief economist for Moody’s Analytics, a forecasting firm in West Chester, Pa.
Jumbo mortgages are considered nonconforming loans, meaning lenders can’t sell them to Fannie Mae or Freddie Mac. That means financial institutions must carry the loan — and the risk — on their own books, leaving them less money to make other loans. As a result, lenders are more cautious in issuing jumbos, so consumers face fewer choices, tougher approval processes, and often higher rates.
Nationally, the rate for a 30-year fixed jumbo mortgage averaged 4.38 percent last week, compared to 3.8 percent for a similar conforming loan, according to Bankrate.com, a consumer finance website.
The market for jumbo loans all but shut down during the recent recession, but began a rebound in 2010, said Amy Tierce, regional vice president at Fairway Independent Mortgage in Needham. In 2010, jumbo mortgages accounted for less than 5 percent of her office’s business; today, it’s about 15 percent.
“It really opened up last year,” Tierce said, “but more so this year in terms of lenders coming back, rates getting better, and options for borrowers getting more plentiful.”
In addition to an improved economy that has made lenders more comfortable holding loans, a growing number of private investors are buying jumbo mortgages, allowing banks to move the jumbos off their books, much as they sell conforming loans to Fannie Mae and Freddie Mac.
In the last year to 16 months, investors made three or four bulk purchases of jumbo mortgages, known as private placements, which were unheard of in 2009 and 2010, said Michael Copley, executive vice president for US retail lending at TD Bank.
Despite better credit conditions, mortgage specialists said, jumbo borrowers should still expect a rigorous approval process, requiring more documentation than a conforming loan.
Michael Shuckerow, 41, said he was surprised by the extent of the scrutiny he and his wife Nicole, 38, faced when obtaining a mortgage for the $1.5 million home they purchased in Wellesley in April. They were asked for an explanation of a time share in Hilton Head, to produce insurance policies, and were even asked why they had a third car.
At one point in the discussions, the couple thought they’d have to pay a 35 percent down payment instead of 25 percent, because the lender balked at considering as income the bonuses that make up a significant part of both Shuckerows’ compensation. And despite their substantial income and perfect credit, the process took about two months, said Michael Shuckerow, a securities lawyer.
“It’s very different from six years ago,” he said. “I popped in there one night after work, we faxed a few documents, and we had a jumbo mortgage.”
Just as for a conventional mortgage, jumbo borrowers should be prepared to provide detailed documentation of their credit, income, assets, and the loan-to-value ratio of the home. But for a jumbo mortgage, borrowers may also need enough cash reserves to cover the first six months of mortgage payments.
Alternatively, they could be required to make a down payment of up to 35 percent.
“You have to expect a painstaking documentation process,” added Tierce, of Fairway Mortgage. “Whatever it is you send, they’ll probably ask you for more.”
Jumbo borrowers should shop around for the best rate or mortgage terms, since some lenders will only offer variable-rate jumbo mortgages, said Guy Cecala, publisher of Inside Mortgage Finance, a mortgage industry research and publishing company.
“Just about every small lender, including credit unions, will make jumbo loans,” Cecala said. “Generally, the large national lenders don’t have the best deals on jumbo mortgages, the community lenders do.”