Rate Spread Between Traditional Conforming and Jumbo Mortgages Remains Stubbornly High

The uncharacteristically high spread between 30-year fixed rate jumbo and conforming mortgages measured 1.36 percent this week, according to the BanxQuote Index; the company said that the national average 30-year fixed rate conforming mortgage moved up to 6.63 percent, while the the national average 30-year fixed rate jumbo mortgage up to 7.99 percent this week. The spread of 1.36 percent between the two isn’t as high as what wsa observed in the middle of March, at the height of financial market turmoil, but it’s still well above what has been historically observed. perhaps more interestingly, both jumbo and conforming rates continue to move in tandem — since last week, the average rates of 30-year fixed rate conforming and jumbo mortgages are up 0.48 percent and 0.47 percent, respectively, BanxQuote said in a press statement. Until August 2007, the spread between jumbo and traditional conforming mortgages remained within a range of one quarter of a percent or less, or 25 basis points. As the credit crisis has worn on, that historical spread has widened dramatically, and has yet to come down. “The jumbo-conforming mortgage spread started widening from 0.16 percent in late July 2007, reaching a peak of 1.90 percent in late March 2008, and narrowing somewhat since then,” said Norbert Mehl, CEO of BanxQuote. “Nevertheless, this extraordinarily high spread, combined with rising mortgage rates, tighter credit standards and disappearing adjustable rate jumbo mortgages, continues to present a challenging outlook for the housing, mortgage and banking markets, and particularly for the luxury end of the real estate market.” The company did not report on average rates for so-called “jumbo conforming” mortgages, which refer to jumbo mortgages above the traditional $417,000 conforming limit threshold that, for now, are eligible for underwriting by Fannie Mae (FNM) and Freddie Mac. Such mortgages should not be confused with the jumbo-conforming spread reported by BanxQuote; the company did not provide data regarding the average rates on these higher-balance conforming mortgages. Disclosure: The author held no positions in FNM or FRE when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.