Jumbo Mortgage Credit Crunch and Impact Lawrence Yun, Ph.D. Chief Economist NATIONAL ASSOCIATION OF REALTORS ® Presentation at NAR Real Estate Services Forum Washington, D.C. May 14, 2009

10-Yr Treasury vs. AAA Bond Yield Source: Federal Reserve and S&P

10-Yr Treasury vs. Jumbo and Conforming

Number of Jumbo Mortgage Originations Falling

States with Large Percentage of Jumbo Mortgages Over 20 percent 10 to 20 percent 6 to 10 percent Source: 2007 HMDA Data

Jumbo Volume Share of Market – Top 15 states Percent of Loans that are Jumbo$417,000 to $730,000Over $730,000 U.S.10%8%2% Hawaii43%35%8% California41%31%10% District of Columbia30%23%7% New York22%17%6% New Jersey17%14%3% Maryland16%13%3% Massachusetts14%11%3% Virginia14%12%2% Connecticut14%9%5% Washington13%11%2% Nevada12%9%3% Florida10%7%3% Arizona9%7%3% Colorado9%7%2% Oregon9%7%1% Source: HMDA data 2007

Jumbo Dollar Share of Market – Top 15 states $ Share of Jumbo Loans$417,000 to $730,000Over $730,000 U.S.30%17%12% Hawaii65%42%23% California63%36%27% New York51%28%22% District of Columbia50%32%18% Connecticut39%15%23% New Jersey34%23%12% Maryland32%23%10% Massachusetts31%19%13% Virginia31%22%8% Florida29%15%14% Washington29%20%9% Nevada27%17%10% Colorado26%14%12% Arizona25%13%12% South Carolina22%12%11% Source: HMDA data 2007

High-end Existing Home Sales (Homes priced above $750,000) 4.4% 3.7% 2.3% Source: NAR 2009 figures are annualized from January and February sales.

Months Supply of High-end Inventory (Homes priced above $750,000) Source: NAR 2009 figures are annualized from January and February data

Months Supply of All Existing Homes Source: NAR 2009 figures are annualized from January and February data

Local Case: Orange County, CA Months Supply in Modest Homes Source: Altera Real Estate in March, 2009

Local Case: Orange County, CA Months Supply in High-end Homes Source: Altera Real Estate

Local Case: Orange County, CA Few distressed inventory in high-end homes Price Range Active ListingsForeclosure & Short Sale% Share All Homes11,6064, % Up to $250K2,1061, % $250K-$500K3,6342, % $500K-$750K2, % $750K-$ 1 M1, % $ 1 M - $1.5 M1, % $ 1.5 M - $ 2 M % Over $ 2 M1, %

Local Case: Seattle, WA Months Supply Homes Over $750K All Homes Source: John L Scott Real Estate

Economic Contribution $263 Billion Total *Based on a per home economic impact of $67,811 in 2007 **Shares are based on an estimate of US economic impact and state and category loan dollar shares

Refinancing Could Release Additional Funds for Spending Mortgage Payments at:Cash Freed Number of Loans Average Loan Size6.50%4.80%Per MonthPer Year Loans over $417K but under $730K 300,296 $514,100$3,249.46$2,697.30$552$6,626 Loans over $730K92,410 $1,174,500$7,423.64$6,162.19$1,261$15,137

Who are the Buyers? Generally higher income families But also more middle-income families in some states

Median Incomes of Jumbo and Conforming Borrowers by State totalconformingAll Jumbo417K to 730KOver 730K U.S. National77,20071,300207,600179,800383,900 Alabama61,80060,500247,400223,900430,200 Alaska78,00076,100169,300165,500360,000 Arizona79,30074,300227,400192,900395,200 Arkansas56,60056,100226,800209,900337,500 California127,20095,900190,000165,200343,900 Colorado79,80074,700225,500190,900407,500 Connecticut86,80078,200245,600192,400457,600 Delaware78,50074,700234,700206,200436,400 District of Columbia113,30088,900199,900177,000345,300 Florida88,10080,800285,700233,000483,100 Georgia68,10065,800229,200201,200391,100 Hawaii112,00085,500159,600142,800376,100 Idaho66,90064,800246,700206,100474,300 Illinois74,80071,000229,300198,700391,400 Indiana56,60056,000232,300216,700425,900 Iowa55,90055,500237,200223,400392,300 Kansas60,50059,700239,000217,500385,500 Kentucky59,20058,500239,800223,300408,800 Louisiana65,20064,300263,700230,500460,800 Maine68,70066,600261,100234,000472,700 Maryland89,80081,100177,400163,000334,900 Massachusetts90,20081,900209,900183,000394,400 Michigan59,90058,900257,700227,600445,900 Minnesota68,80066,500222,500197,400391,100 Source: HMDA data, (Percentile : ACS PUMS)

Median Incomes of Jumbo and Conforming Borrowers by State totalconformingAll Jumbo417K to 730KOver 730K Mississippi61,40060,800239,500220,700437,500 Missouri59,50058,500258,500229,500425,400 Montana65,90064,200293,600227,700460,500 Nebraska59,80059,400268,900251,800416,700 Nevada88,10080,800244,400212,100453,300 New Hampshire82,00079,500228,900210,800494,400 New Jersey104,20093,000210,900188,100421,600 New Mexico70,60068,500216,100196,100369,200 New York96,60081,000197,500167,300449,400 North Carolina70,70068,000232,400201,800391,900 North Dakota57,90057,700295,000285,000713,000 Ohio59,70058,800239,600219,600423,000 Oklahoma58,30057,800279,600247,000477,500 Oregon79,30074,900203,200185,200364,000 Pennsylvania67,90066,100222,200201,000409,400 Rhode Island79,10075,500242,800204,200530,200 South Carolina70,30067,100264,700222,800461,800 South Dakota57,40056,900268,800244,400525,000 Tennessee61,80060,200232,800207,600406,800 Texas74,20072,300276,500239,500448,400 Utah70,30067,200231,500193,500484,500 Vermont74,20071,600314,600247,400693,200 Virginia85,60077,200176,400163,600321,900 Washington86,00078,600181,100165,300336,700 West Virginia60,70059,900241,700213,800491,700 Wisconsin66,20064,900244,900220,200411,100 Wyoming66,80065,300199,000167,000500,000 Source: HMDA data, (Percentile : ACS PUMS) Continued

Percent of Homes per state that are valued over 500K and 1 million Percent greater than 500KPercent greater than $1 million California39.2%8.2% New York28.5%6.4% Connecticut25.7%10.2% New Jersey25.0%4.7% Massachusetts20.2%4.4% Virginia18.9%2.7% Nevada16.4%2.8% Maryland13.8%1.7% Florida12.4%3.4% Washington12.3%3.0% Oregon11.8%1.4% Delaware11.5%1.9% Illinois11.0%2.8% Arizona10.9%1.9% Colorado9.9%2.8% New Mexico9.3%2.1% Idaho9.0%4.0% Montana8.6%4.0% New Hampshire8.5%1.6% Utah8.2%1.9% Georgia6.1%1.9% North Carolina5.8%1.2% Minnesota5.5%1.2% Maine5.5%2.4% South Carolina5.2%2.0% Source ACS estimates

Percent of Homes per state that are valued over 500K and 1 million Percent greater than 500KPercent greater than $1 million Wisconsin4.9%0.9% Alaska4.0%1.6% Tennessee3.4%0.8% Pennsylvania3.2%0.5% Puerto Rico3.2%0.6% Texas3.2%0.7% Michigan2.8%0.4% Louisiana2.5%0.5% Alabama2.5%0.3% Missouri2.4%0.6% Mississippi2.3%0.7% Kentucky1.8%0.5% Ohio1.6%0.2% Arkansas1.5%0.6% Iowa1.5%0.0% Indiana1.4%0.4% Kansas1.4%0.4% West Virginia1.2%0.3% Oklahoma1.1%0.3% South Dakota0.8%0.5% Nebraska0.5%0.0% North Dakota0.2%0.0% Source ACS estimates Continued

High-Income Families contribute heavily in taxes, yet getting punished on mortgage rates Total income tax (millions of dollars)$394,066$597,863 Source: IRS

Prime Loans 60+ Day Delinquency Rates: Jumbo vs Conforming Source: Loan Performance

Defaults and Foreclosures Historically, jumbo have had a lower risk of default. But now the reversing trend may indicate increased risk and due to the concentration of jumbo mortgages in states with higher rates of foreclosure. Lack of Jumbo financing may be resulting higher default and foreclosure rates due to lack of capital for prospective buyers or the inability of owners to refinance into lower payments Independent of local market default rate, why is a person with top-notch credit score paying higher interest rates than person with a lower credit score taking out 417K loans

Other Issues – Percent of Purchases Above $750K Paid in Cash Source: NAR Survey Home Buyers and Sellers

Are buyers purchasing smaller houses due to decreased availability of jumbo loans and increasingly difficult credit requirements?

Are there buyers who want but cannot get jumbo mortgages or do not want to pay higher jumbo rates appear to have just dropped out of the market?

Respondents picked their top 2 reasons why qualifying for a jumbo loan has become difficult

In the most recent jumbo transaction of which you are aware, what was the required down payment?

Quotes from REALTORS ® “I have noticed that a borrower with a 625 credit score ad only 5% down payment on a conforming loan amount is being treated like a lower risk than a borrower with an 800 credit score and 20% down payment on a jumbo loan. This seems wrong to me.” “ People needing jumbo loans make good money and have good credit. They should be getting better rates, not worse”

Policy Response Encourage competition –Bank consolidation and freeze in warehouse lending has reduced competition Raise loan limit or suspend loan limit Federal Reserve buy jumbo loans via TALF