Even as mortgage rates begin to rise, the difference between conforming and jumbo loan rates is shrinking, and that is good news for buyers of higher-priced homes. Conforming loans are largely financed by Fannie Mae and Freddie Mac, and are valued at up to $417,000 – although they can be as high as $625,000 in some of the nation’s pricier markets. Mortgage loans in Denver certainly fall in this category.
Jumbo Loans are anything above that and are funded by banks or private investors. Rates used to be far higher for jumbo loans, but that is changing fast. As reported by the Mortgage Bankers Association, The spread between a jumbo and a conforming mortgage rate was as wide as 0.875 percent last summer. It has now dropped to between 0 and 0.25 percent as of Monday.
The jumbo market has heated up, as tight lending guidelines have drastically reduced consumer late payments, strategic defaults, and foreclosures, this gives investors confidence to buy jumbos again, which means lower rates for consumer borrowers.
The rebirth of jumbo securitization is being driven not just by investor confidence, but by growth in jumbo origination, which increased after the conforming loan limit was lowered. Origination of non-agency jumbo mortgages jumped by over 19 percent in 2012 from 2011, according to Inside Mortgage Finance.