Salient to Investors:

Guy Cecala at Inside Mortgage Finance said jumbo loans, mostly adjustable but also fixed-rate, increased by 34 percent in the first 9 months of 2013.

Greg McBride at Bankrate said cash-rich banks, including Wells Fargo and Bank of America are using ARMs to hedge the loans’ longer-term payments with expected increases in borrowing costs as interest rates rise.

Richard Lepre at RPM Mortgage said people have decided that whatever happened in 2008 will not repeat and there is more concern about bank borrowing costs going up than about home values falling again. Lepre said some jumbo borrowers don’t need a mortgage but get a jumbo loan to put into investments.

Bankrate said jumbo ARM rates dropped to a national average of 2.78 percent in the last week of November, the lowest in more than a year, and versus the jumbo fixed rate of 4.41 percent, the average ARM rate on conventional mortgages of 3.54 percent and average fixed rate of 4.33 percent.

ARMs often have rates that can triple when they reset, usually after a fixed period of 5 or 7 years. The first rate adjustment may be as high as 5 percent or 6 percent, with subsequent annual changes capped at 2 percent.

Jack Hartings at Peoples Bank said jumbo ARMs generally are lower risk than conventional ARMs because borrowers have greater resources: jumbo ARMs often require credit scores of 740 or higher, and owners must usually have at least 20 percent to 25 percent equity in the property.

CoreLogic said both ARM and fixed jumbos performed poorly in 2009, with US home loans of more than $1 million going bad at almost twice the rate of all mortgages.

Daren Blomquist at RealtyTrac said wealthy borrowers are not immune to foreclosure and it is harder to sell a $5 million home and the maintenance costs are higher. Blomquist said the higher default rate for high-balance loans stems partly from more affluent borrowers being more willing to walk away from mortgages they could afford when they see it as financially smarter to cut their losses when a home is losing a large amount of value.

Emmanuel Saez at the University of California said that in 2013, the share of income earned by the richest 10 percent of Americans was the biggest in about a century. Those in the top one-tenth of income distribution earned almost 12 times earnings in the bottom tenth.

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