Increase in Jumbo Mortgage Defaults

Written by HERS on June 30, 2008 – 9:12 am -

This weekend I was flipping through an old Money Magazine from November of 2007. We usually use the library for books and reading material, to include magazines. Typically you can get recent copies as soon as they become a month old but occasionally I will pick up some older ones as well. The content really doesn’t become outdated to the point of uselessness.

This one particular article was about the number of jumbo mortgages in default, specifically a 65% increase in the number of prime jumbo mortgages in default between June 2006 and June 2007. I can only believe that the trend has continued right into 2008. We live in the Washington DC area so in order to buy a house we would fall into the jumbo mortgage category since a typical 3 bedroom house is priced in excess of $600k.

We currently rent and live in a brand new, very nice apartment building that we are perfectly satisfied with. I don’t expect us to be calling up a real estate agent any time soon in this area. But, yesterday we were taking a little drive to go see the new Extreme Makeover, Home Edition house that they are building this week in MD. We drove down a long, windy road through what turned out to be a very high end, beautiful area.

The houses on both sides of the street were HUGE, not just big, but HUGE! I’m talking jaw dropping, have to look kind of houses. We thoroughly enjoyed the drive and getting a chance to see these homes. What surprised me was the number of For Sale signs out in front of these places. So, I decided to do a little online research into what these homes actually cost and how many were on the market.

I plugged in a started search criteria of greater than $1 million and the results I got back exceeded the max allowable number of 250 so I bumped it up to greater than $2 million and was able to it down to about 200 results. I was in shock that one little town could have that many homes in that price range on the market. This really was a small area that wasn’t too densely populated as each home sat on a significant lot.

In general, about $3 to $5 million got you seven bedrooms, seven bathrooms and if you went up to the $8 million dollar range you got around ten bedrooms. Yes, they were beautiful homes, but everyone would agree that this is a bit excessive! I have to believe that people got themselves into mortgages that they just couldn’t handle and in this case multiple mortgages.

If you can’t afford a traditional mortgage on a piece of property than you really can’t afford it in my opinion, clear and simple.