Those With Jumbo Loans Are Struggling

What is a jumbo loan?

A jumbo loan allows for individuals to borrow over a certain amount.
Amount: $417,000 from 2006 to 2008.
Then the amount was increased in the beginning of 2008 to $729,750.
Now back down to $417,000.

What market is this type of loan aimed toward?

Usually, high income families looking to purchase larger homes would request a jumbo loan, but between 2000 and 2008 the prices of average homes reached above average prices forcing middle class individuals take jumbo loans as well.

Pros and Cons

A positive attribute of a jumbo loan is that it allows for an individual to borrow greater loan amounts.
Jumbo loans are risky for lender because unlike the traditional loans they will not be able to sell the loan to a secondary market like Fannie Mae and Freddie Mac.
Borrowers of this type of loan will have to pay extra to their lenders because of the high risk involved.
Facts about jumbo loan holders today
Increase in delinquency rates began in 2007 and nearly triple in California with an 11.3% reported delinquency rate for January 2010.
Florida, New Jersey, New York and Virginia also had the highest amount of jumbo loan delinquencies compared with other states. Leading factors to current delinquency rate
Underwater mortgages
Job losses

Jane’s thoughts…

There are unfortunate circumstances that may result in dramatically lower income, causing individuals to lose most of their possessions. Circumstances such as a job loss, extreme illness and death in the family can change the living conditions of many. These reasons, except for the increase in the unemployment rate, have been constant throughout the years. Why are so many in defaults and why are there so many foreclosures now? People were able to get away with borrowing what they knew very well they could not afford. With prices of homes rising the middle class family was purchasing at the rate of the rich. These are the individuals who carry underwater mortgages and are possibly losing their homes. Banks were lending irresponsibly, this is the reason for the trouble they are in now. Lenders and individuals are more cautious about the financial choices they are making.