Historically, large-balance “jumbo” mortgage loans have had a larger interest rate than conforming loans. However, the opposite has held true since 2013, with a jumbo loan an average of 33 basis points cheaper to borrow than a conforming mortgage loan during the first quarter of 2018.
One of the reasons behind this switch is the increase in guarantee fees, or g-fees, for loans purchased by Freddie Mac and Fannie Mae for conforming and high-balance conforming loans. These g-fees have almost tripled since 2010, and since Fannie and Freddie do not buy jumbo loans, these fees have almost no impact on jumbo loan interest rates.
Another reason is the comparatively higher credit standard of jumbo loans.
The average credit score for home buyers with 30-year fixed-rate jumbo loans was 18 points higher than for home buyers with conforming loans in Q1 2018, compared to just 4 points higher for home buyers with jumbo loans in Q1 2009. Thus, the jumbo-conforming spread may have been influenced by the higher-standard of jumbo loans and risk-based pricing, the process through which lenders tend to charge premiums for higher-risk mortgages and lower rates for lower-risk loans.
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