Rates for jumbo loans (mortgages larger than $417,000) — even for borrowers with good credit — are soaring amid turmoil in the home-mortgage market. CNNMoney reports that Wells Fargo, one of the big players in the mortgage market, has raised rates on 30-year-fixed non-conforming (jumbo) loans to 8 percent from its previous 6.875 rate.
A Wall Street Journal article yesterday (subscription-only) predicted the rate spike will make home prices drop further in “areas where homes typically bought by middle-class people can easily cost $500,000 to $700,000.”
High rates further restrict the pool of eligible, willing buyers (borrowers). And fewer people out buying means extra competition among the sellers of the 22,563 homes on the resale market this morning (inventory count via ZIPRealty).
I spoke to Mike Rafii, a local mortgage banker with Premier Bancorp, about the news. He said he expects the rate spike will be temporary, lasting until the secondary market (the Wall Street system of purchasing packages of mortgage bits) decides how much risk it’s willing to absorb.
Lenders are acting defensively, he said — raising the rates on jumbo loans for good-credit consumers because they’re unsure what those investors will pay for the loans after getting stuck holding the bag for all of the trouble in the subprime sector.