Conforming up, jumbo down

October 11th, 2007, 3:07 pm · 2 Comments · posted by Mathew Padilla

The gap continues to narrow between jumbo and conforming loans in O.C.

The average rate on a 30-year fixed conforming loan (for $417,000 or less) rose slightly this week to 6.2%, reports Newspaper Chart Services. Meanwhile, the average jumbo rate on a 30-year fixed slid to 7.069%. (Jumbo loans are for more than $417,000.) Both rates come with a one-point fee.

That means the gap between them is down to 87 basis points (or 87/100 of a percentage point). The gap has been sliding since early September, when it peaked at 135 basis points.

Experts say investors are tepidly buying jumbo loans again. Still, the gap historically has been closer to 20 to 30 basis points, experts say.

Here’s a table showing the gap falling from its peak.

Date	Jumbo	Conf.	Gap
6-Sep-07	7.570	6.217	1.353
13-Sep-07	7.340	6.161	1.179
20-Sep-07	7.240	6.147	1.093
27-Sep-07	7.210	6.211	0.999
4-Oct-07	7.100	6.177	0.923
11-Oct-07	7.069	6.200	0.869

Share this post:

Posted in: Mortgage rates

You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

Hot topics

Roger Herrick says:

October 11, 2007 at 4:17 pm

Mortgages over the conforming limit generally carry a slightly higher rate than conforming loans. Although lately 100 basis points higher or 1%, Usually for a Jumbo 30-year fixed-rate mortgage, you would be paying about .25% more, though in peticular circumstances or specific guideline requirements the difference may be greater.

The reason for this higher rate is that jumbo mortgages carry more risk to the lenders and usually involve extra underwriting requirements and less available automated underwriting functions, and these costs are then passed along to the homeowner in terms of a higher rate difference between jumbo and conventional loan amounts.

The major damage is probably already done, and the present situation will likely settle out over the coming year. Lenders will stop pulling products off the shelf, and the rates on products that have moved so significantly higher now should trend lower down the road as delinquency rates stabilize.

http://www.contactherrick.com

Post Reply

October 12, 2007 at 9:45 am

What is a Jumbo or Conventional Loan?

A mortgage is considered jumbo when it exceeds the conforming limit set by Fannie Mae and Freddie Mac, the federally chartered companies that provide funding to retail mortgage lenders. The limit is adjusted annually based on average house prices. For 2007, the limit is $417,000 for single-family homes in the continental U.S. (The limit is 50 percent higher in Alaska, Hawaii, Guam and the U.S. Virgin Islands.) If the increase has caused your loan balances to qualify as conforming, you may benefit from this market alignment.

Mortgages over the conforming limit carry a slightly higher rate than conforming loans. For a 30-year fixed-rate mortgage, you would most likely be paying about one-eighth to one-quarter of a percent more, though in some circumstances the difference may be greater and has reached over a full one percent in the current market turndown. The reason for this higher rate is that jumbo mortgages carry more risk to the lenders and usually involve extra underwriting requirements and less automated underwriting functions, and these costs are passed along to the homeowner.

The conforming limit for 2007 is the same as it was in 2006. However, in 2006 the limit saw a 16 percent increase over 2005, the largest jump ever in a single year. (The 2005 limit was $359,650.)

This amount is being reviewed by Fannie Mae and Freddie Mac as a Senate approval on a bill created Thursday October 11th to increase their purchase ability by 10%.

Orange County Register