Jumbo Mortgage Products Accelerating to Meet Demand

I'm often called a "radical capitalist" because I have a belief in free markets.  No, I'm not talking about the faux mortgage "market", where banks make loans, package them up to get government-agency guarantees, and sell them to Wall Street, who will come begging for bailouts when they lose money.  I'm talking about unencumbered markets.

Time Magazine explores what life will be like after Fannie and Freddie are buried (they're already dead).  As usual, it appraises the situation mostly wrong, repeating the oft-beleived mantra that housing is too important to leave to the private sector.  What I found, when I started my search for private-money mortgage capital, contradicts the Time articles' prognostications:

Fiction: Everyone will have to put 20 percent down.
Fact: Lower down payment options will always exist.

Time Magazine got this one right.  Private mortgage insurance companies are already rolling out products which insure loans down to 5% down payment options, here in California.  We've come a long way since 2009.  Jumbo mortgages are available with as little as 10% down, up to $1,000,000.  This was all private market solutions.

Fiction: The homeownership rate will plummet.
Fact: The government will probably not be getting out of the mortgage business, so any declines in homeownership will be due to changes in consumer sentiment, not access to loans.

Time got this one 100% wrong.  The Dodd-Frank financial overhaul bill is abysmal.  The newly created Consumer Financial Protection Agency is leaderless, other newly created agencies have no sense of direction, and the Federal Reserve compensation restrictions have every bank complaince officer scratching his head to understand how to best implement them. 

Until those regulations get repealed, and political sentiment says they will be repealed , home ownership rates will continue to plummet.  When government gets out of the way, and stops insuring the bad lending decisions which poorly run banks make, the healthy banks, credit unions, and hedge funds will meet consumer demand, and offer profitable products.  Lenders lend; that's how they make money.

Fiction: High-end homes will become harder to buy.
Fact: Conforming loan limit changes will affect a small sliver of the market, a sector of housing consumers who can afford to get jumbo loans on the private market.

Time Magazine got this partly correct.  As conforming loan limits revert to $417,000, this October, even more private lenders will step up to meet the demand of the Southern California market.  As stated earlier, we already have a 10% down payment option for home purchase up to $1,000,000.  When banks see there is demand in that $1,000,000 to $2,000,000 price range, they will make loans.

The frozen jumbo mortgage market is thawing.  It's still frosty, and hardly free flowing, but demand is there.  When demand for capital is there, and a buck stands to be made, supply of capital will readily flow.