The spread between jumbo and conforming mortgages is shrinking. And that’s a good thing for the mortgage market. It means that private capital is coming back into the market, according to analysis from Capital Economics.
“We think that the decline in the jumbo-conforming mortgage interest rate spread is a positive sign for the future of the mortgage market,” Capital Economics Property Economist Paul Diggle said.
The spread between jumbo and conforming mortgages has progressively fallen since the early part of 2013, even turning negative for a brief period in February. Diggle says this is due to two factors:
Diggle says that the shrinking spread is a positive for mortgage lending. “After all, the spread is one indicator of the willingness or ability of private capital to compete with GSE money in the mortgage market,” he said.
“Consistent with that, the evidence suggests that jumbo mortgages are becoming increasingly available. In addition, the tight spread is an encouraging step towards the goal of running down the role of Fannie Mae and Freddie Mac in the mortgage market. That’s arguably the single most important reform which would put the US housing market on a long-term sustainable path.”