Mortgage rates change little, but are jumbos in trouble?by Keith Gumbinger
While mortgage rates are pretty flat at the moment, at least some folks are starting to worry about the coming market for jumbo loans.
A change in the maximum loan sizes that Fannie Mae and Freddie Mac can buy (or that the FHA can back) is the culprit. It is only the first of what will be many changes in the market in the months to come.
But is it really a coming catastrophe for certain housing markets?
We expected mortgage rates to be a little higher last week by perhaps a couple of basis points. The actual change in rates was about half that:
HSH.com’s broad-market mortgage tracker–our weekly Fixed-Rate Mortgage Indicator (FRMI)–found that the overall average rate for 30-year fixed-rate mortgages increased by a single basis point, moving to an average of 4.78 percent.
FHA-backed 30-year fixed-rate mortgages, especially important to first-time homebuyers and low-equity refinancers, eased back by two basis points to close the week at 4.42 percent.
Even though fixed-rate mortgage are cheap, at least some of you should consider the near $20,000 savings which can be had over the next five years with a 5/1 Hybrid ARM ($300,000 loan amount.) Average starting rates for these products now stand at 3.36 percent.
A reduction in loan limits
The coming reduction in the “maximum maximum” loan limit in high-cost markets of $729,750 will be reduced to $625,500 for loans delivered to the GSEs no later than September 30. Since it takes perhaps 60 days to get a purchase transaction done these days, borrowers should expect to see lenders invoking these new lower limits in the next few weeks.
The change to loan limits will expose some borrowers to the whims of the private mortgage market for the first time in three years.
Will the fall in agency-backed loan sizes trouble certain housing markets?
“At least some markets are going to be affected,” noted HSH.com VP Keith Gumbinger in the latest edition of our Market Trends newsletter.
“The cost of mortgage money and the availability of credit may be impacted for a while, perhaps though the end of 2011, but competitive market forces should foster improvements as we move forward.”
A more detailed review of the issue, including a chart showing the change in costs for jumbo versus agency jumbo mortgages over the past three years can be found in the latest edition of the Market Trends, titled “Mortgage Rates Little Changed; Jumbo Conundrum?”
Where are rates headed this week?
Nowhere fast. We expect them to mostly drift sideways, but possibly nudging upward by a few basis points at most.