Jumbo loans are now cheaper than traditional ones

The difference is so small that it's almost meaningless, but lending executives are still surprised at how low the rates are.

By Kim Peterson Sep 5, 2013 1:15PM
Image: Swimming pool (© Corbis)Lenders wanted nothing to do with jumbo loans during the financial crisis. These mortgages -- loans of $417,000 or more -- dried up after 2008 and were seen as too risky as real estate markets collapsed.

But that's all changed. Now, for the first time ever, it's cheaper to get a jumbo loan than a traditional one, The Wall Street Journal reports. It's a striking turn of events that has surprised even the most seasoned lending executives.

"In my 30-year career, I've never seen nonconforming loans priced below conforming loans," Walls Fargo (WFC) mortgage executive Brad Blackwell told The Journal.

The difference is so small that it's almost meaningless. The average rate for a traditional, or conforming, 30-year loan was 4.73% last week, The Journal reports. But the rate for the average jumbo 30-year loan was 4.71%. Still, the fact that these two rates are even close at all is shocking for some.

Why the renewed interest? Mainly because banks have a lot of cash right now, with more deposits than loans. They want to do something with that money, and jumbo loans are a safe and stable option.

And jumbo borrowers are usually wealthier than traditional borrowers. That means banks can take advantage of that relationship to sell them credit cards or brokerage accounts, The Journal reports.

The country's wealthy bounced back earlier in the recovery, and sales of properties between $750,000 and $1 million rose nearly 40% in February from a year earlier, Reuters reports. Sales of properties valued at over $1 million rose some 25%.

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Sep 5, 2013 3:42PM
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