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30-Yr fixed 4.750 % 0.7 to 1
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Weekly Jumbo Mortgage Rate Update

Jumbo loans are so called because they are larger than the conforming limit set by Fannie Mae and Freddie Mac. The two government-sponsored enterprises will not buy loans larger than this limit. Jumbo mortgage rates are higher than conventional loans because lenders have to either keep them on their books or sell them to non-government aggregates. Either way, there is more risk so lenders usually charge a higher rate for these loans. There is a spread between jumbo loan rates on 30-year fixed-rate loans and rates on 30-year fixed-rate conventional loans.

As of September 21, 2011, the rate offered on a jumbo 30-year fixed-rate loan was 4.37 percent, already a very low rate for any jumbo loan. By comparison, the rate offered on a conventional 30-year fixed-rate loan was 4.10 percent, a difference of .27 percent or 27 basis points. The previous week ending September 15, 2011 saw the conventional 30-year fixed-rate loan at 4.32 percent, which means the 30-year conventional loan declined by .22 percent or 22 basis points. Applying the 27 basis point spread, the inference is that jumbo 30-year fixed-rate loans stood at 4.59 percent in the week ending September 15. This would hold with a decline of 22 basis points in the conventional loan market.

The current low interest rate environment is the result of the Federal Reserve’s zero interest rate policy (ZIRP). Holding interest rates at effectively zero for so long puts tremendous downward pressure on government bond yields, which strongly influence the yields on mortgage-backed securities and jumbo mortgage rates. On Wednesday, September 21, 2011, the Federal Reserve announced “Operation Twist.” This new program has the central bank selling $400 billion of Treasury’s with maturities of three years or less. The Federal Reserve will then use the proceeds to purchase an equal number of Treasury’s with maturities between six and 30 years.

The government bond market reacted immediately. Yields on 30-year Treasury’s plunged in response and yields on short-term government debt shot upwards. Additionally, the central bank stated that it would reinvest principal payments on its mortgage-backed securities portfolio into new mortgage-backed securities. These two moves will add even more downward pressure to mortgage rates. New record lows will probably be reached in the coming weeks as the markets continue to price in the Federal Reserve’s anticipated moves next year. The central bank’s move to re-start the economy may fail, but jumbo loan rates will remain super-low for now.