“In my 30-year career, I’ve never seen nonconforming loans priced below conforming loans,” said Brad Blackwell, executive vice president of Wells Fargo Home Mortgage.
Welcome to Bernanke’s world where the well-heeled can get a Jumbo mortgage rate lower than a conforming one. This puts a hurt on the one group, first time buyers, that Bernanke and the President have been trying to help. First time buyers should have dump trucks of cash at the ready. Instead we have another government policy with unintended consequences. Today’s American dream should still be a house but instead it’s a brand new car!
Why did we bailout GM?
Conforming loans have become more expensive because federal officials, in a bid to reduce the outsize footprint of Fannie and Freddie, have raised the fees those companies charge to lenders, which translates into higher mortgage rates.
Meanwhile, interest-rate volatility has driven up yields on mortgage bonds issued by Fannie and Freddie as investors brace for a slowdown in the Federal Reserve’s bond-buying program, which has included those mortgage bonds. That has boosted rates on conforming loans.
Jumbo mortgages, meanwhile, are increasingly kept on banks’ balance sheets, which means prices aren’t usually set by bond markets. “Banks have more deposits than loans today, so the desire to put that money to work, as well as the fact that it’s at a very low cost, allows us to make [jumbo] loans at a very good interest rate,” said Mr. Blackwell.
Read more here.