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Interesting article about the dropping jumbo mortgage rates.

Article credit: Credit Card Builders - www.creditcardbuilders.com

Anyone who routinely pays relatively close attention to mortgage rates is aware that they’re on the rise these days.

But what you might not know is what is going on with some specific rates.

Jumbo rates (rates for a loan of more than $417,000) have come down significantly – to the point where they are nearly the same as a conventional rate (those $417,000 and under). In fact, according to the Mortgage Bankers Association, a 30-year conventional mortgage rate in mid-August was 4.56%; meanwhile, the average Jumbo loan was an almost-identical 4.57%.

So what event led to these numbers becoming so similar? Basically, it is a perfect storm of several things. First, because underwriting became more stringent, the loans given out became higher quality loans – thereby increasing demand for them. Second, non-agency jumbo lenders began to throw their hat into the ring. Third, Fannie Mae and Freddie Mac (which are involved in about two-thirds of all conventional loans) have nearly doubled the “guarantee fees” they charge to protect themselves against potential default, since they’re on the hook if a borrower defaults. Finally, many jumbo mortgages are being done by banks who are holding onto them and keeping them in their own portfolios. Why? Because the interest paid on consumer deposits in banks is still low enough that a lender can still make a tidy profit.

Fannie Mae and Freddie Mac’s decision to raise these fees is making it possible for private individuals and companies to become lenders. Ironically, this has been done intentionally. Not only do the fees protect Fannie and Freddie, the result is that they purposely reduce the industry’s dependence on them – and by doing so, it helps encourage private investment at the same time; a win-win. Meanwhile, the more high-risk loans will still be absorbed by Fannie and Freddie.

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