In a volatile mortgage market, spreads between conforming and jumbo loans are widening

The latest data from the weekly survey of Freddie Mac shows that the 30-year fixed-rate mortgage fell four basis points last week to 6.66%, after jumping 40 basis points the previous week, reflecting volatility due to continued economic uncertainty.

But eligible borrowers can get lower rates with jumbo mortgages, as spreads between those loans and the conforming option widened further this week. Meanwhile, since jumbo loans are typically aimed at high-income homebuyers, the current landscape presents extreme affordability challenges.

The Freddie Mac Index compiles mortgage purchase rates reported by lenders over the past three days. It focuses on conventional, conforming, fully amortized home purchase loans for borrowers who have put 20% down and have excellent credit.

A year ago at this time, rates averaged 2.99%. “Rates remain quite high compared to just a year ago, which means housing continues to be more expensive for potential buyers,” said Sam Khater, chief economist at Freddie Mac.

On housing cableMortgage Rate Center, Black KnightOptimal Blue’s OBMMI pricing engine measured the 30-year conforming mortgage rate at 6.651% on Wednesday, down from 6.643% the previous week. Meanwhile, the 30-year fixed-rate jumbo (above $647,200) posted lower rates: 6.137% on Wednesday, down from 6.294% the previous week.

At Mortgage News Daily, rates were 6.95% for conformants and 5.95% for jumbos on Wednesday, a spread of 100 basis points.

The Mortgage Bankers Association (MBA), however, measured the average contract to comply at 6.75% this week, down from 6.52% the previous week. For jumbo loans, it went from 6.01% to 6.14% over the same period.

Going back to the financial crisis, when mortgages were toxic, spreads were around 250 to 300 basis points over the comparable maturity of 10-year Treasury bills. Right now they are the highest since [the Financial Crisis].

Matt Graham, Founder and CEO of MBS Live

“Jumbo rates offer a great opportunity in terms of standing against conventional rates, especially jumbo ARMs,” a South Carolina retail lending executive told HousingWire. “Fannie Mae and Freddie Mac not much appetite at the moment. The government is trying to stifle that. »

According to South Carolina’s LO, some homebuyers applying for jumbo loans are borrowers who historically would pay cash but are being hit hard by the current stock market turmoil.

“With the stock market going down, people don’t want to lock in their losses by selling their investments to buy a house for cash,” LO said. “Despite higher rates than a year ago, mortgages remain an attractive alternative for them.”

Low-income borrowers, however, would pay more for a conventional loan, showing that the current landscape is creating affordability issues, the LO said.

All about propagation

Rising mortgage rates reflect Federal Reservemonetary policy tightening to control soaring inflation. The Fed raised the federal funds rate by 75 basis points to its Federal Free Market Committee (FOMC) in September.

Further hikes of 125 basis points are still expected in 2022, with the fed funds rate capping well above 4%.

Treasury yields are showing higher short-term rates, signaling a recession on the horizon. The 2-year note, most closely tied to Fed interest rate moves, rose eight basis points to 4.15% on Wednesday from a week earlier. The 10-year fell from 3.72% to 3.76% over the same period.

“Going back to the financial crisis, when mortgages were toxic, spreads were around 250 to 300 basis points over the comparable maturity of 10-year Treasury bills. bred since [the Financial Crisis]. To me, that suggests a bit of a push,” said Matt Graham, Founder and CEO of MBS live Wednesday at the 2022 HousingWire Annual Meeting in Scottsdale, Arizona.

Looking ahead, he said: “For mortgage rates to recover further, the market needs time allocation – whether you find investors feeling comfortable, we get a mortgage rate, which is what we reconstitute today, more or less. ”

Pressure on rates has sharply reduced demand for mortgages, according to the MBA. The composite market index, a measure of the volume of mortgage applications, fell 14.2% for the week ending September 30. It was also affected by the arrival of Hurricane Ian in Florida. The rollover index was down 18% from the previous week, and the buy index was down 13%.

Comments are closed.