Conforming Mortgage Rates and Jumbo Mortgage Rates

Conforming mortgage rates, also known as conventional mortgage rates, are mortgage rates that are for home loans under a certain dollar amount set by the Federal Housing Finance Agency. The FHFA sets loan limits by county in the U.S. and used to be $417,000 and up to 50% higher in area where home costs are high.

Since the recession of 2009 new loan limits were set through a series of legislative acts that have temporarily increased single family loan limits up to $729,750. You can find the FHFA's loan limits by county right here. Home loan limits by county.

These home limits are used by government sponsored enterprises like Freddie Mac and Fannie Mae as a guide to by mortgages from banks and mortgage lenders after the loans are made. Freddie Mac and Fannie Mae do not make loans directly, they only buy mortgages from approved lenders.

The process of buying mortgages from mortgage lenders and banks replenishes their supply of funds and enables lenders to make more mortgage loans to other borrowers. Thus providing liquidity to the mortgage market and lowering mortgage rates.

Jumbo Mortgage Rates

Jumbo mortgage rates are are for home loans that are above conforming home loans. Jumbo mortgage rates are always a little bit higher than conforming mortgage rates because mortgage lenders and banks do not have the guarantee that Freddie Mac or Fannie Mae will buy their loans.

As a result lenders have to sell the mortgages to third party investors and those investors require a little premium because of the risk. During the financial crisis jumbo mortgage rates were about 2.00 percent higher than conforming mortgage rates.

Direction of Mortgage Rates in 2010

The direction of both conforming mortgage rates and jumbo mortgage rates will be higher in 2010. The Boston Federal Reserve President, Eric Rosengren, believes 30 year mortgage interest rates will rise by .75 percent by the end of the first quarter because the Federal Reserve will have completed its $1.25 trillion program of buying mortgage-backed securities.

The $1.25 trillion program was started last year to provide much needed liquity to the mortgage market and to drive mortgage rates down to help the housing market recover.  Now the Fed is winding down the program if mortgage rates do increase by .75 percent that would bring 30 year mortgage rates towards 6.00 percent.
Author: Brian McKay
January 12th, 2010
Posted in: Mortgage Rates