MBA Chart of the Week: Spreads Between Jumbo and Conforming Loans

Source: MBA Weekly Applications Survey

The spread between the rates for jumbo loans and conforming loans historically averaged around 25 basis points and reached as high as 50 basis points during the recession. However, historical rate data from our Weekly Applications Survey shows that the spread narrowed after 2010. In fact, since late 2013 jumbo rates have been lower than conforming rates. Jumbo rates have been six basis points lower than conforming, on average, to date in 2017.

Banks flush with deposits have enthusiastically competed for jumbo loans. Lenders with the ability to keep jumbo loans on their portfolios have been able to offer lower rates as they do not pay guarantee fees to the GSEs on these loans, and guarantee fees are more than double their level pre-crisis. The very competitive market for jumbo loans has also led to expanded availability of jumbo products to eligible borrowers. This trend was picked up by our Mortgage Credit Availability Index, which has shown a significant increase in jumbo credit availability starting around the time the jumbo-conforming spread turned negative.

Additionally, as we noted in a separate MCAI release recently, we saw higher loan-to-value ratios on existing ARMs loan programs in July, which exerted an upward pressure on the MCAI. This change affected conforming loan programs as well as agency jumbo programs, which focus on loans in high cost areas that exceed the baseline conforming loan limit of $424,000 but which are still eligible for purchase by the GSEs.