Yesterday the Fed made a drastic move and cut the Federal fund rate by 0.75%. With this rate many people expected rates for home loans to drop substantially. Not the case… The fed rate cuts do not directly impact mortgage interest rates, but it does impact homeowners with equity lines of credit, people who carry credit card balances and other short term loans.
While not directly tied to the fed rate cut, mortgage rates did drop yesterday. Jumbo rates decreased 0.125% and conforming rates (loan amount under 417K) decreased 0.25%.
Rates for conforming loans under 417K are great. Unfortunately, very few Marin homeowners can get a conforming loan with average home prices close to a million dollars. Jumbo rates continue to be almost a full percentage point (or more) higher than conforming loans. The spread between conforming and jumbo interest rates has continued to increase. A year ago there was very little difference in these rates, but the market for these jumbo loans has tightened so substantially that jumbo loans are much harder to get- and much more expensive for borrowers. Inman News reported today the California Governor Arnold Scharzenegger has jumped in and joined other groups like the National Association of Realtors who are calling for an increase in the conforming loan amount.
Conforming loans are those that can be guaranteed by Fannie Mae and Freddie Mac. By increasing the conforming loan amount,fixed rate loans would be much more affordable for lower and moderate income borrowers in high cost areas.
Until then, many jumbo borrowers many have to look at adjustable rate mortgages vs fixed in order to make their mortgage payment affordable. Jumbo interest rates are not expected to see much of a decline over the next 6-12 months.