New Hampshire avoids a ‘jumbo’ loan problem

Although sales of high-end homes in New Hampshire may be slowing in response to rising interest rates and a credit squeeze, the state appears insulated from an even more immediate concern afflicting other regions where high housing prices prevail.

Rates on “jumbo” mortgages – mortgages over $417,000 – are on the rise in New Hampshire, as elsewhere, in some cases reaching between 7 and 8 percent, while rates on conventional 30-year mortgages, or conforming loans, remain closer to 6 percent.

According to Quentin Keefe, owner of Regency Mortgage Corp. in Manchester, jumbo loan rates have historically remained between three-quarters and one full percentage point above rates on conforming loans.

Nationally, jumbo loans make up 16 percent of all mortgages, and in regions of the country where the majority of homes are priced well above $500,000 – California, New York City and Washington, D.C., for example – buyers of high-priced homes represent all income demographics, not only the state’s wealthiest residents. Therefore, rising interest rates have a significant impact on the real estate markets of those areas where jumbo loans make up a significant share of the mortgage business.

In a state like New Hampshire, however, where only 7 percent of all homes are valued over $500,000 and the median family income is the fifth highest in the country, rising jumbo loan rates will have little effect on the housing market, said demographer Peter Francese of Exeter.

“The jumbo mortgage business here in New Hampshire is really no big deal, it’s just not an issue,” said Francese, director of demographic forecasting for the New England Economic Partnership and a consultant to the New Hampshire Association of Realtors.

The fact that many New Hampshire homebuyers are commuting from neighboring states, purchasing second homes or coming to New Hampshire to retire also contributes to an insulating factor, according to Francese, because of their ability to place large down payments on their new homes or even pay cash.

“It’s when you have a high proportion of people borrowing 90 to 95 percent to purchase their homes that you have a hard time,” he said.

According to David Cummings of the Realtors association, 7,736 homes were sold in New Hampshire between Jan. 1 and Aug. 22. The average selling price was $303,038 and only 418, or 5 percent, sold for more than $600,000.

As of Aug. 22, 12,888 homes were on the market in New Hampshire. Some 1,382, or 11 percent, of those were priced above $600,000.

Reasons for the increase

Meanwhile, jumbo loans appear to be the latest victim of the subprime mortgage mess.

“It’s really any loan not backed by Fannie Mae or Freddie Mac,” Keefe said. “The whole thing started with subprime loans, but now includes Alt-A’s – products with lower credit standards and verification requirements — and jumbos, all nonconforming loans.”

Currently mortgages below $417,000 are sold on the secondary market to entities like Fannie Mae and Freddie Mac. Government-sponsored enterprises like these have practically guaranteed lenders a secondary market for their loans.

Loans over $417,000, however, are not eligible for purchase by the GSEs, and lenders have begun to raise interest rates to assuage concerns over dwindling demand for these large loans in a skittish secondary market.

“The jumbo market is not imploding, but lenders are looking at this saying, ‘What is the best way to mitigate my risk?’” Keefe said. “Their answer is to stick with Fannie Mae- and Freddie Mac-backed loans.”

Keefe believes the rise in jumbo mortgage loans will begin to subside by October, having little impact on New Hampshire’s housing market in the meantime.

“What we’re seeing is just a reflection of the current market, and over time we’ll see it return within a quarter of the rates set for conforming loans,” Keefe said. “The jumbo market that exists in New Hampshire remains strong.”