I’ve noticed a curious trend in the last few weeks: Rates for Jumbo loans are very close to the rates for conventional loans.
I’m not the only one who’s noticed. Financial writers have been commenting on the situation.*
If you’re not familiar with jumbo mortgages, these are bigger loans that are not backed by a government guarantee from Fannie Mae or Freddie Mac. Jumbos are typically in the $417,000 to $750,000 range. Prior to the financial crisis, their rates were around .25% higher than conforming loans, and after the crisis the gap widened to as much as 1.8%, an indicator of the flight of private capital.
In September, something changed. Today, we’re seeing both Jumbo and conventional loans with Annual Percentage Rates (APRs) that are very close – low to mid 4’s. It’s only been a month but we may be witnessing a trend.
So what’s up?
Opinions vary, of course. Some observers think that banks with excess capital to lend are feeling pressure to put this money to work, which may be leading to higher demand for jumbo loans and thus lower rates. Another interpretation is that the fees charged by Fannie and Freddie to guarantee loans have increased in recent years, making conventional loans more expensive, which would help close the gap with jumbo loans.
Those who favor more private market involvement within the mortgage industry may see falling jumbo mortgage rates as the first step on the path toward private options for conventional loan amounts. After all, at some point working with Fannie and Freddie may become prohibitively expensive.
It’s too early to tell if this trend will continue, but I’ll be tracking it over the coming months.
No matter what the trend, if you’re in the market for a Jumbo loan, give me a call.
Francis Phillips is the sole author of the content and any opinions expressed in the newsletter are not necessarily those of FCLS, FCB, its owners, officers and employees. This email is meant for informational purposes only, and is not a substitute for financial planning, investment or legal advice.