Jumbo Loans Availability and Rates Point To Growing Housing Market
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.
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 securitizations is being driven not just by investor confidence, but by growth in jumbo originations, which increased after the conforming loan limit was lowered. Originations of non-agency jumbo mortgages jumped by over 19 percent in 2012 from 2011, according to Inside Mortgage Finance.
What Happened to Rates Last Week:
Mortgage backed securities (MBS) gained +42 basis points from last Friday to the prior Friday which caused 30 year fixed mortgage rates to move to lower. We had our highest mortgage rates on Monday and our lowest rates on Friday.
Retail Sales were much stronger than expected (1.1% vs est of 0.5%) and Initial Jobless Claims dropped again. These two positive economic reports pressured MBS. But offsetting that was very tame inflationary data from both the PPI and CPI reports and a much weaker than expected Consumer Sentiment Index (71.8 vs est of 78.2). The last report hit Friday and was responsible for a large increase in demand for MBS which in turn helped to improve mortgage rates.
What to Watch Out For This Week:
The following are the major economic reports that will hit the market this week. They each have the ability to affect the pricing of Mortgage Backed Securities and therefore, interest rates for Government and Conventional mortgages. I will be watching these reports closely for you and let you know if there are any big surprises:
|Date||ET||Economic Release||Actual||Market Expects||Prior|
|18-Mar||10:00 AM||NAHB Housing Market Index||–||48||46|
|19-Mar||8:30 AM||Housing Starts||–||910K||890K|
|19-Mar||8:30 AM||Building Permits||–||924K||904K|
|20-Mar||7:00 AM||MBA Mortgage Index||–||NA||-4.70%|
|20-Mar||10:30 AM||Crude Inventories||–||NA||2.624M|
|20-Mar||12:30 PM||FOMC Rate Decision||–||NA||0.25%|
|20-Mar||2:00 PM||FOMC Rate Decision||–||0.25%||0.25%|
|21-Mar||8:30 AM||Initial Claims||–||345K||332K|
|21-Mar||8:30 AM||Continuing Claims||–||3065K||3024K|
|21-Mar||9:00 AM||FHFA Housing Price Index||–||NA||0.60%|
|21-Mar||10:00 AM||Existing Home Sales||–||5.00M||4.92M|
|21-Mar||10:00 AM||Philadelphia Fed||–||-3||-12.5|
|21-Mar||10:00 AM||Leading Indicators||–||0.50%||0.20%|
|21-Mar||10:30 AM||Natural Gas Inventories||–||NA||-145 bcf|
I will be watching these reports closely for you and let you know if there are any big surprises:
It is virtually impossible for you to keep track of what is going on with the economy and other events that can impact the housing and mortgage markets. Just leave it to me, I monitor the live trading of Mortgage Backed Securities which are the only thing government and conventional mortgage rates are based upon.