‘Jumbo conforming’ rates could come down

New securitization rules don't apply to most jumbos

Changes in the rules for selling jumbo mortgages to secondary market investors could mean lower interest rates for home buyers seeking loans that fall within the new $625,550 limit for purchase or guarantee by Fannie Mae and Freddie Mac in high-cost housing markets that takes effect Jan. 1.

The Securities Industry and Financial Markets Association says it will allow Fannie, Freddie and Ginnie Mae to mix a limited number of the "jumbo conforming" loans — no more than 10 percent — in pools of conforming loans sold to secondary market investors for "To-Be-Announced" delivery. The TBA market is considered the most important secondary market for mortgages because bonds are traded even before the specific loans that back them are actually identified.

"We expect higher balance borrowers to receive both rate relief and increased liquidity as was desired in the legislation, while retaining the overall liquidity of the TBA market," SIFMA managing director Sean Davy said in a statement. The new arrangement "preserves the overall homogeneity of the market while at the same time minimizing the risk of a negative impact on mortgage rates for lower-balance-loan borrowers, or, potentially, all borrowers."

When Congress and the Bush administration in February granted Fannie and Freddie temporary authority to purchase loans of up to $729,750 as part of the economic stimulus bill, SIFMA ruled that the larger loans could not be mixed into the same pools with mortgages that fell within the $417,000 conforming loan limit. The industry association was concerned that investors would have difficulty valuing pools of mixed jumbo and conforming loans, and that interest rates on conforming loans might go up because of worries about the performance of the larger loans (see story).

With the temporary $729,750 limit expiring at the end of the year, SIFMA is ready to allow some mixing and matching of conforming mortgages with loans up to the new $625,550 limit for high-cost areas established by the sweeping housing bill signed into law at the end of July, HR 3221 (see story).

Despite the higher limits, Fannie and Freddie haven’t played a big role in the jumbo loan market, and analysts at Barclays Capital estimate that only 15 percent of jumbo loan borrowers will qualify under the new $625,550 loan limit, Reuters reported.

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