Jumbo loan rates as cheap as standard mortgages?

Due to changes in the mortgage market, borrowers in some parts of the United States are able to finance pricey homes at lower rates than those on federally subsidized loans. The average interest on “jumbo” loans is approaching rates on standard mortgages.

The gap between the two has narrowed to levels not seen since before the credit crunch – a time when there was a robust secondary market for mortgages.

The moves add a new dimension to the debate about the U.S. government’s role in the national residential property market, which the White House has vowed to scale down over time. Jumbo loans are too big to qualify for a guarantee from Fannie Mae and Freddie Mac, which only deal with balances up to $417,000 for most houses and up to $625,500 for properties in the nation’s more expensive markets.

As competition has risen in the jumbo loans market, the two government-sponsored enterprises have been hiking fees on for their standard mortgage guarantees to something closer to a market rate.

“The benefits are available to a limited spectrum of borrowers and particularly desirable ones at that,” says Keith Gumbinger of HSH, who explains that banks may offer jumbos to affluent consumers that they want to make regular customers. “There are cross-selling opportunities to the wealthy.”