WSJ: Mortgage Rates on Expensive Homes Drop Below Those on Cheap Homes

Friday, 06 Sep 2013 08:11 AM

By Dan Weil

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Mortgage rates on costly homes have dropped below those for inexpensive homes for the first time ever, loan executives tell The Wall Street Journal.

Loans for expensive homes, called "jumbo mortgages," exceed the size limit for backing by Fannie Mae, Freddie Mac or government agencies. Smaller mortgages, known as "conforming loans," are eligible for that backing.

The upper limit for conforming loans is $417,000 in most cities.

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As of Aug. 30, the average 30-year fixed-rate conforming mortgage stood at 4.73 percent, according the Mortgage Bankers Association. That compares with 4.71 percent for the average jumbo 30-year fixed-rate mortgage.

"In my 30-year career, I've never seen non-conforming loans priced below conforming loans," Brad Blackwell, executive vice president of Wells Fargo, told The Journal.

Government policy has made conforming loans more expensive by raising the fees that Fannie and Freddie impose on lenders, the paper explained. Rising mortgage bond yields also are pushing conforming mortgage rates higher.

Jumbo mortgages often stay on banks' balance sheets, meaning they aren't as affected by bond rates, The Journal noted. And banks flush with cash are eager to lend.

If the economy continues to strengthen, mortgage rates, which are near two year highs, can keep rising, Keith Gumbinger of HSH.com, a mortgage information provider, told CNNMoney.

"As the economy shows signs of improvement, you can expect interest rates to continue to firm," he said. "I think the general consensus is things are getting better."

Editor’s Note: Weird Trick Adds $1,000 to Your Social Security Checks

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