Jumbos now cost more than traditional mortgages

Federal intervention into the traditional mortgage market makes jumbos less attractive

National /
Jul.July 27, 2020 01:30 PM
(iStock)

(iStock)

Interest rates on so-called jumbo mortgages are above the historically low rates for smaller traditional mortgages for the first time in five years.

It’s a sign that lenders now see smaller loans as safer since the federal government stepped in to hold up the mortgage market amid the coronavirus pandemic, according to the Wall Street Journal.

Home loans are considered “jumbo mortgages” if they’re too big to be sold to federal government-backed Fannie Mae and Freddie Mac, but there is no set dollar figure for that metric. This year most loans over roughly $510,000 are considered jumbo loans.

The Federal Reserve announced in March it would buy around $250 billion in mortgage securities to help keep the housing market moving. Taking those securities off lenders’ books means those lenders can continue to originate new mortgages, which will help the market from drying up.

Banks know they have a buyer in the federal government when they originate a mortgage, diminishing the risk they take originating them.
Banks tend to keep jumbo mortgages on their own books, betting that the wealthy people who borrow them won’t default. With more risk, they’re raising lending standards.

Wells Fargo earlier this year announced it would only refinance jumbo loans for customers with more than $250,000 in liquid assets, although earlier this month removed that requirement.

The gap between jumbo and traditional mortgage rates, currently about 0.4 percent, could take years to narrow. Rates didn’t narrow until five years after the last financial crisis. [WSJ] — Dennis Lynch


Related Articles

arrow_forward_ios
Pandemic lockdowns for all three cities started in the last full week of March 2020, but office use had already plunged the week before as companies proactively sent workers home (iStock)
Manhattan lags Chicago, LA in returning to the office
Manhattan lags Chicago, LA in returning to the office
The latest measure comes a month after the state lifted most restrictions. (Getty)
Los Angeles County re-imposes indoor mask mandate
Los Angeles County re-imposes indoor mask mandate
UBS CEO Ralph Hamers (Getty, ING Group / Sander Stoepker)
UBS Group going hybrid as workers return
UBS Group going hybrid as workers return
Austin, Texas saw pricing of 5 to 9 percent above asking in the first six months of the year. (iStock)
Big city homebuyers are paying above asking prices
Big city homebuyers are paying above asking prices
The measure bars landlords from evicting tenants who suffered a financial hardship brought on by the pandemic. (Getty)
LA extends eviction moratorium
LA extends eviction moratorium
(iStock illustration by Kevin Rebong for The Real Deal)
Morgan Stanley bans unvaccinated staffers from offices
Morgan Stanley bans unvaccinated staffers from offices
Sure We Can has tried to purchase the property in the past (Facebook via Sure We Can, Getty)
Lifeline for canners needs city’s help to buy redemption center site
Lifeline for canners needs city’s help to buy redemption center site
Photo Illustration of Airbnb CEO Brian Chesky and Vrbo CEO Jeff Hurst (Getty)
Home invasion: Vrbo aims to poach listings from Airbnb as summer heats up
Home invasion: Vrbo aims to poach listings from Airbnb as summer heats up
arrow_forward_ios

The Deal's newsletters give you the latest scoops, fresh headlines, marketing data, and things to know within the industry.

Loading...