Foreclosure numbers have been falling in the past few years, but one segment of mortgage-borrowers continues to have an unusually high percentage of defaults – jumbo loan customers.
Jumbo loans are those made for mortgages more than $417,000 in most areas of the country. For the top layer of jumbo loan borrowers – those taking out loans of $750,000 or more – the foreclosure rate was 2.5 percent in December 2014, according to real estate analytics firm CoreLogic. By comparison, the national foreclosure rate on all mortgages fell to 1.4 percent, the lowest point in seven years.
Before the housing market crash, the largest mortgages typically had the lowest foreclosure rates. For example, in January 2006, Corelogic reported that the rate on home loans $750,000 and above was just 0.1 percent, while the national rate was 0.5 percent.
The switch occurred in March 2008 and peaked in May 2012 when $750,000 and above mortgages had a foreclosure rate of 6.8 percent. The overall market rate never went above 3.6 percent during the Great Recession. And even though both rates are declining, the larger loan segment remains considerably higher.
There are a few reasons behind this increase in jumbo loan foreclosures. For one, CoreLogic says that these wealthier homeowners were more affected by the stock market crash of 2008 than were the rest of American homeowners, resulting in major financial losses which led to mortgage defaults.
CoreLogic also suggests that jumbo loan foreclosures are so high because some of the highest concentrations of homes priced over $750,000 are in states with the highest foreclosure rates. These include New Jersey with 5.2 percent, New York with 4.0 percent and Florida with 3.7 percent. These states require judicial review of all foreclosures, which has created a back log of expensive homes in default. And until those states get all their cases processed through the courts, there will continue to be a higher rate of foreclosure among the largest home loans.