What Does the Future Hold For Jumbo Loans?
by Tim Manni
Jumbo mortgages, a home loan of over $417,000 in most parts of the country and $729, 750 in others, are a fading product in today’s mortgage industry. The inflated loan amount presents added risks for lenders, forcing them to increase the restrictions and qualifications they place on borrowers.
Moreover, the government’s latest initiatives aimed at lowering mortgage rates aren’t designed to help the jumbo market. The Fed’s decision last week to increase their commitment to purchasing Fannie and Freddie mortgage-backed securities sent conforming rates plunging — increasing the interest-rate spread between conforming and jumbos to 1.56%.
“Although last week’s announcement by the Fed does not directly impact jumbo rates, it does affect the expanded-conforming loans, otherwise known as jumbo-conforming loans, that Fannie and Freddie own or guarantee,” explained HSH Vice President Keith Gumbinger.
The lack of political benefit centering around jumbo loans hasn’t stopped investors from pursuing the product. While the spread between conforming and jumbo rates remains high, it doesn’t change the fact that both the jumbo rates and spreads are narrowing. As of last week the spread between conforming and jumbo rates was down nearly a third of a percent from December:
The average interest rate for a jumbo loan, which unlike conforming loans aren’t federally guaranteed, has dropped from a high of 7.9% at end of October to 6.63% last week. That is the lowest average rate since the end of 2007, according to financial publisher HSH.com in Pompton Plains, N.J.
Some investors are ready to pounce on the under-served jumbo market, anticipating the potential of a significant payday:
“Some of the major lenders have gotten their act together and said: ‘We can make serious money on the jumbo market and make it into a competitive business,’” said Guy Cecala, publisher of InsideMortgageFinance.com in Bethesda, Md., a mortgage industry newsletter.
With foreclosures and falling home prices still posing a major threat to the market, some lenders will continue to shelve the product, but other are ready to jump start the market.
