Jumbo loan defaults rise at fast pace in US

Luxury homeowners are falling behind on mortgage payments at the fastest pace in more than 15 years, a sign the US financial crisis that began with the poorest Americans has reached the wealthiest.

About 2.57 per cent of prime borrowers who took out jumbo loans last year were at least 60 days delinquent, a percentage reached within 10 months and the fastest since at least 1992, according to LPS Applied Analytics, a mortgage data service in Jacksonville, Florida.

That’s almost twice as quickly as 2007 borrowers fell behind and a level 2006 owners haven’t attained after almost three years. The jump in late payments on jumbo loans, while still lower than the 20 per cent delinquencies in subprime mortgages, signals that the borrowers with the most money and the best credit are hurting as the US recession deepens in its second year. It also means these loans will be even more difficult to obtain and more expensive to pay off.

“The biggest influence in rising delinquencies is related squarely to the economy rather than poor underwriting,” said Keith Gumbinger, vice president of HSH Associates, a Pompton Plains, New Jersey-based mortgage research firm. “We are apparently all suffering to some degree. It’s certainly more severe for some but still, it’s pretty much widespread.”

Raymond Young bought his lakeside home in Miami four years ago for $2 million cash and in 2006 took out a $1.4 million jumbo mortgage to pay for a real estate venture in Texas. Now, with home prices in his area down 40 per cent from their 2006 peak, according to the S&P/Case-Shiller Home Price Index, Young needs to refinance because the Texas investment isn’t paying off and his income has dried up. He can’t find a bank to help.

No Refinancing
“They’re telling me the house is only worth $1.3 million,” said Young, 46. “I’m upside down. I’m stuck. I’m in bailout mode but they’re bailing out banks and they’re not bailing out homeowners.”

President Barack Obama’s Homeowner Affordability and Stability Plan, announced this week, has no provision to help jumbo mortgage borrowers.

US joblessness reached a 25-year high in January while the unemployment rate in the financial industry rose to 6 per cent from 3 per cent a year ago. It jumped to 10.4 per cent from 6.4 per cent in the category of professional and business services, according to the US Bureau of Labor Statistics in Washington.