Monday, May 12
Posted 11 a.m. EDT
START YOUR CONFORMING JUMBOS: Lenders just might be getting serious about underwriting the new conforming jumbo mortgages for more than $417,000. Word is that the new conforming jumbos sport a rate about three-eighths to half of a percentage point higher than rates for conforming loans.

Before this year, mortgages were separated into two categories by loan amount. Conforming loans could be bought and guaranteed by Fannie Mae and Freddie Mac, and there was a maximum loan size, set by a formula, that changes in most years. At the beginning of this year, the conforming limit was $417,000. Loans above that amount were jumbo mortgages.

Californians and Americans want to refinance their jumbo ARMs into jumbo fixed-rate mortgages to escape escalating ARM rates. But high jumbo rates (which I'll get to in a sec) are deterring a lot of people. So this spring, Congress created a third class of loan: the conforming jumbo. These are loans for more than $417,000 and up to $729,750. The conforming jumbo limit varies by metro area. In most of the country, the limit remains $417,000, but it's higher in places where houses are expensive. In Southern California, the conforming jumbo limit is all the way to the max possible $729,750. In Medford, Ore., the jumbo conforming limit is $422,500.

Before last summer, jumbo loans typically had rates about a quarter of a percentage point higher than conforming mortgages. But an August meltdown in the jumbo loan market, and the resulting drying-up of money available to jumbo borrowers, pushed jumbo rates higher. Last week, in Bankrate's weekly survey, the 30-year fixed conforming loan averaged 6.13 percent and the jumbo averaged 7.35 percent. The difference between the conforming and the jumbo was 122 basis points, compared to about 25 basis points a year ago. We mortgage geeks like to say that the spread between conforming and jumbos almost quintupled.

The new conforming jumbo mortgages officially became available at the beginning of April. But they weren't priced differently from regular jumbo loans. The lack of a rate differential defeated Congress's purpose in creating the jumbo conformings. Teeth were gnashed.

On Friday afternoon, Fannie Mae announced that it would buy jumbo conforming mortgages for the same prices as conforming loans. Some investors, and therefore lenders, immediately dropped their rates on conforming jumbos. From what I hear, the new jumbo conforming rates are about three-eighths to half a point higher than conforming rates.

In real numbers, this means that if a conforming customer is quoted a rate of 6.125 percent for a 30-year fixed, a jumbo-conforming customer with the same excellent credit profile (and solid equity in the house) is quoted a rate of around 6.5 to 6.625 percent. That's still higher than the conforming rate, but it's a big improvement compared to the jumbo rate, which remains well north of 7 percent.

Friday, May 9
Posted 2 p.m. EDT
SCOOP ON RATES: If you're a diligent Bankrate reader, you already know that long-term fixed rates dipped this week, after three straight weeks of small rate rises. The 30-year fixed fell 3 basis points, to 6.13 percent, in Bankrate's weekly survey that was conducted Wednesday.

Since then, the benchmark rate has dropped a little lower, but hardly enough to notice. You might be getting a slightly better bang for the buck when you pay discount points.

I regret the dearth of posts lately. Last week was jury duty, and this week I'm at the National Association of Real Estate Editors, or NAREE, conference in Dallas, and every day the schedule is full. There are lots of interesting panel discussions and tours, but little time to think or to blog. Or, for that matter, to follow the news.

ABOUT THE NEWS: The House has passed a bill to encourage lenders to forgive delinquent borrowers' debt enough to allow those borrowers to qualify for FHA-insured loans. The administration says the bill is unacceptable as passed. I have a hunch that a compromise measure will become law this summer, in time for the Republican convention.

The bill that was passed by the House yesterday was crafted by Barney Frank, D-Mass., who is a serious legislator, not a posturer, and who will search for mutually acceptable compromises among the House, Senate and White House. As far as the White House goes, I think the most important negotiating point will be "risk-based pricing" of FHA mortgage insurance premiums.

The federal housing commissioner, Brian Montgomery, appeared at NAREE yesterday and said that the Bush administration has two demands for overhaul of the FHA, or Federal Housing Administration.

First, Montgomery said, Congress needs to allow the FHA to charge higher insurance premiums to riskier mortgage borrowers. Right now, FHA insurance premiums are the same for everyone -- those with credit scores of 550 who are borrowing 97 percent of the home's value, and those who have credit scores of 680 who are borrowing 90 percent.

Montgomery implied that the FHA might reduce premiums for less-risky borrowers, compared to the premiums charged today.

Second, Montgomery said the Bush administration wants to ban seller-funded down payment assistance. This would end the down payment assistance programs pioneered by Nehemiah and Ameridream, in which sellers indirectly fund buyers' down payments. Montgomery said the delinquency and foreclosure rates on those properties are much higher. The down payment assistance industry disputes that assertion.

Key Democrats are loath to ban down payment assistance programs, and risk-based pricing hasn't had a particularly warm reception, either. My guess is that the Dems will agree to phase out down payment assistance, and to agree to a pilot FHA program with risk-based pricing, and both parties will go into the fall campaigns with the ability to brag that they did something to address foreclosures.