Few mortgage professionals live to see a headline like the one above. But, if you’ve been keeping track of the latest rates, you know that such a reversal occurred over the last two weeks.
Reported by the Wall Street Journal, jumbo rates dropped below their 30-year fixed conventional counterparts due to multiple factors: fluctuating interest rates, government policy concerning Fannie Mae and Freddie Mac, and banks’ lower funding costs.
Specifically, the difference ends up being 4.73 percent for a 30-year, fixed-rate conforming mortgage and 4.71 percent for a 30-year, fixed rate jumbo loan, according to the Mortgage Bankers Association.
There are a few factors perhaps influencing this shift:
1. As we pointed out back in July, demand for jumbo loans began increasing in 2012 and grew through 2013. The penultimate culmination, then, was the slight interest rate spread that month: Jumbo loans were just 0.17 percentage points higher than 30-year, fixed-rate conventional loans, coming down from a 0.5 percentage point difference the year before.
2. Roughly a month ago, the President spoke about making changes to conventional mortgages, with phasing out Fannie Mae and Freddie Mac being one. As a precursor to such a major change, federal officials raised the fees the two organizations charge lenders, according to the WSJ.
3. Added to the above factor, bond markets for conventional loans have increased. Prices for jumbo loans, if you don’t know, do not follow bonds.
4. According to a piece in the Chicago Tribune, rates for all types of mortgages have been increasing at the same time the economy recovers. While this has resulted in a lesser push for refinancing, the improved economy and lower rates for jumbo loans make purchasing such properties a safer option, particularly considering how high percentage points crept up after the housing crash. For those that don’t remember, the difference between conventional and jumbo loans was once 1.8 percentage points.