Rates Come Down On Jumbo Mortgage Loans

Play associated audio

There is something new and different for home mortgages: Jumbo loans are being made at lower interest rates than traditional home loans. That's kind of like a first class airplane ticket being cheaper than riding in coach.

At first this seems crazy. For as long as anybody can remember, homeowners have had to pay a premium to get jumbo loans. That's because they're not guaranteed by the federal government. If they're not guaranteed, they're riskier, so they cost more in interest payments.

"That's the old math," says Scott Simon, who for many years was one of the biggest mortgage traders in the world. "In the new world, that doesn't have to be true."

Simon, who worked for investment firm Pimco, says right now banks are making most of those jumbo loans only to the very best customers — wealthy people with perfect credit, who can put a lot of money down.

So cutting them a good deal isn't crazy.

"These are incredible borrowers and the banks want to do business with these people because they can do so much other business with them," Simon says.

Meanwhile, big banks have more cash on hand to loan out to these very best customers.

And also, the government controlled mortgage giants Fannie Mae and Freddie Mac have been ratcheting up fees they charge to guarantee those traditional loans for the rest of America. That pushes up interest rates for average people who take out those smaller traditional loans.

"I'm not sure it's a good thing or a bad thing," Simon says. "What it's gonna do is make Fannie and Freddie incredibly profitable."

That profit will flow back to the U.S. Treasury, which controls Fannie and Freddie. So Simon says it won't be long before Fannie and Freddie have handed over more money to the government than it cost taxpayers to bail them out.

Copyright 2013 NPR. To see more, visit http://www.npr.org/.

NPR

A Grisly, Humorous Dissection Of Morality In 'Anatomy Theatre'

It was once thought that evil resided inside the body. So murderers were dissected to find it. That macabre practice is the subject of a dark but funny new opera, "Anatomy Theatre."
NPR

Can Arnold Schwarzenegger Persuade China To Eat Less Meat?

Like the U.S., China is battling obesity and climate change. So it's urging citizens to eat less meat — and spreading the word with public service ads featuring Hollywood stars.
NPR

Trump Lags Behind Clinton In 'Ground Game' Support

When running for office, you need a good "ground game." Some say Trump lacks what's needed to get out the vote. NPR's Scott Simon speaks with Rob Jesmer, formerly with the RNC, about what that means.
NPR

President Obama Acknowledges 'Brexit' To Silicon Valley Crowd

President Obama delivered a speech Friday at Stanford University, and remarked on the Brexit vote in front of a crowd of young, tech-forward, pro-globalization attendees from 170 countries.

Leave a Comment

Help keep the conversation civil. Please refer to our Terms of Use and Code of Conduct before posting your comments.