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February 24, 2009
Selection effect
It seems that some lenders are offering horrible terms to dissuade borrowing for large mortgages:
Some banks, though, are quoting much-higher jumbo rates. Mortgage brokers say that indicates that lenders are reluctant to make jumbo loans and are setting their prices high to deter new deals. For example, Taylor, Bean & Whitaker Mortgage Corp. in Ocala, Fla., recently listed a 7% rate on a 30-year fixed-rate jumbo loan, but charges up-front origination fees equal to 5% of the loan.Jumbo Mortgages, Jumbo Headaches
That's pretty terrible. It must scare off a lot of business. I wonder what sorts of people want a mortgage like this? I wouldn't think it was a particularly desirable group who would want credit on such desperate terms. If they do any loans with terms like these, I bet they are to a lousy group of borrowers. It might be dear enough terms to make it worth doing anyway, but given the information asymmetries, I doubt it.
Posted by OneEyedMan at February 24, 2009 7:09 AM
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