When the federal government enacted rules in February to help borrowers get big mortgages, Rick Garcia hoped he'd finally be able to refinance his West Hills home.
The 35-year-old veterinarian started looking for a new mortgage six months ago but says he hasn't been able to find an affordable one.
"We're in June, and I still haven't done it," Garcia said. "How long do you wait?"
At least a while longer, apparently.
Despite the government's effort to address one of the repercussions of the sub-prime meltdown, jumbo mortgages -- those exceeding $417,000 -- have remained difficult to obtain and relatively expensive. But there are signs of normalcy returning to the jumbo market.
Interest rates have long tended to be at least slightly higher on jumbos than on smaller mortgages because government-sponsored mortgage finance giants Fannie Mae and Freddie Mac were barred by law from buying or guaranteeing anything but sub-$417,000 "conforming" loans. Lenders that made jumbo loans had to either hold them in their portfolios or sell them to Wall Street or other private investors.
When the mortgage crisis hit last year, investors fled the home-loan market in droves. That meant you could get a jumbo mortgage only from the few lenders willing and able to hold on to your loan rather than sell it.
As a result, jumbos became much more expensive than conforming mortgages -- and that's if you could get one.
To remedy the situation, Congress included a provision in the huge economic stimulus package in February to boost Fannie and Freddie's maximum loan amount to as much as $729,750 in higher-cost areas such as Los Angeles and Orange counties.
But the change hasn't helped much, mortgage brokers and other experts say.
"It has rolled out somewhat slower than people expected," said Keith Gumbinger, vice president at mortgage research firm HSH Associates. "Not that many borrowers have been able to take advantage of this yet."
One reason is that Fannie and Freddie found little demand for securities backed by the new category of "conforming jumbo" loans that the two companies were now allowed to acquire from lenders.
Consequently, a little more than a month ago the interest rates on 30-year fixed-rate conforming jumbos remained about three-quarters of a percentage point above the rates on smaller conforming loans.
And the new loan category's volume has been low. Freddie Mac, for example, which buys or guarantees an average of $42 billion in loans each month, purchased a total of only $220.2 million of conforming jumbos in April and May, according to industry newsletter Inside Mortgage Finance.
But rates on conforming jumbos began declining in May after Fannie said it would buy the loans for its own portfolio -- instead of trying to sell them to investors. It also said it would buy them at interest rates that were on par with smaller conforming loans, although it charges lenders higher fees on the bigger mortgages.
Rates on 30-year fixed-rate conforming jumbos averaged 6.39% last week, just 0.14 of a percentage point above the 6.25% for conforming loans of less than $417,000, according to HSH.
Also improving the outlook for obtaining jumbos and other mortgages, experts say, Fannie and Freddie have loosened their underwriting criteria a bit. But borrowers still need higher credit scores and lower debt-to-income ratios for conforming jumbos than for regular conforming loans, said Julie Donatoni, chief executive of Acclaro Mortgage Corp. in North Hollywood.
The recent changes have given some mortgage brokers the confidence to move forward with loan applications that had been gathering dust on their desks for months.
"Now we're beginning to see the glimmers of easing," said Jackie Davidson at Pacific Mortgage Consultants Inc. in Glendale. For a mortgage broker, she said, "it's enough to keep you from going out and getting another job -- or at least it is for me."
Another bright spot is that the February stimulus package also raised the Federal Housing Administration's maximum loan amount to $729,750. Getting an FHA-insured loan has traditionally been more cumbersome compared with other loans. But the FHA tends to have less-stringent underwriting standards, including a minimum down payment of only 3%.
"It's the best deal in town for many borrowers," said Guy Cecala, publisher of Inside Mortgage Finance. "Anybody who's looking for a conforming jumbo mortgage has to check out FHA."
The flickers of hope in the jumbo market don't apply at all to anyone looking to borrow more than $729,750. Rates for those loans averaged 7.31% last week.
"The true jumbo rates are still pretty ugly, for lack of a better word," Donatoni said.
Even with the declining rates on conforming jumbos, the increased availability of such loans is likely to be gradual, experts said.
"The downside is it's too restrictive for a lot of borrowers," said Stuart Cooper, senior loan officer at American Capital Corp. in El Segundo. "For a lot of people who are refinancing, it doesn't help them too much."
That describes Garcia.
He has a good job -- he opened his own veterinary practice three years ago, working out of a mobile van throughout Los Angeles County -- and a strong credit history.
He wants to borrow about $650,000 to pay off his mortgage and student loans, replacing his current adjustable-rate loan with a 30-year fixed-rate.
But Garcia is looking for a loan for which he doesn't have to fully document his income, and he's not sure when he'll find one.
"When things drag on for six months it becomes stressful," he said. "You start to feel like it's not going to come through."