Before all the subprime mess, jumbo loans' interest rates were just a little higher than that for conforming loans, because Fannie Mae didn't back them so they had to offer a little better terms to buyers in the secondary market. However, after the problems began, the gap widened, to 1 percentage point. Now, it is almost 1.5 percentage points even though recent legislation allows cities (like mine) to have higher limits on jumbo principal that Fannie Mae can back. That should bring these rates down, making it easier for people to afford some higher priced houses in our area that are comparable to lower priced houses in other areas. When do you think we will see these rates start to fall? This spring? This summer? Never?
To be on the safe side, if I were a buyer I would start locking in now. Think about it... my parents bought their home in Tampa 30 plus years ago at 5.75%.
Regarding Jumbos I will call one of my lenders at W.F. and see what they are quoting today.
The issue is there are people holding those loans having to sell them, little new demand in the marketplace even for the guaranteed loans.
There is a possibility with the FHLB buying $100 billion of Fannie/Freddie loans and the reduced capital requirements for Fannie/Freddie allowing them to securitize (assuming they can find the buyers for the loans) another $200 billion in loans that this demand will reduce rates. The issue is there are a lot of banks & hedge funds wanting to clear their balance sheets of these things and will sell into this demand.
So if Fannie/Freddie + FHLB demand greater than number of people trying to sell, rates go down. Otherwise rates go up. I think the jumbo/conventional spread will "improve" when conventional rates start to rise. But it isn't exactly what people are looking for.
