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In unusual twist, jumbo mortgages now carry cheaper rates than traditional loans. Perhaps this will give a boost to a struggling section of the Flagstaff homes market.

High-end home buyers can now get mortgages cheaper than pretty much everyone else. So-called “jumbo mortgages” exceed $417,000, unless they are for homes in high-cost areas like New York or Los Angeles,where the limit is $625,500. According to an interesting article published on CNNMoney.com (highlights below), banks currently are offering rates on jumbo mortgages that are more than a quarter of a percentage point lower than those on the conforming loans backed by Fannie Mae and Freddie Mac.

Typically, jumbo mortgages are offered at higher rates because the larger amounts are considered greater risks for the banks. This week, Wells Fargo advertised a 30-year jumbo mortgage at a rate of 4.125%, significantly lower than the 4.5% rate it is offering for a 30-year, fixed-rate conforming loan. US Bank is offering a jumbo for 3.875% this week compared with 4.25% for a conforming loan. And Chase’s jumbos have been running a quarter of a percentage point below conventional mortgages.Why?

One big reason jumbo rates are so low is because lenders want to attract wealthy clients and hang on to them, said Malcolm Hollensteiner, head of consumer lending for TD Bank. Once clients sign up for a mortgage, the bank can “cross sell them other products, like brokerage services,” he said. Once a wealthy client takes out one of these low-rate loans, they are likely to stick around. “With rates as low as they are, borrowers are never going to refinance the loans. Those affluent clients will stay on the bank’s books forever,” said Keith Gumbinger, a mortgage expert with HSH.com. So, for people who can afford these expensive homes, the cheaper rate comes at the price of receiving junk mail from your lender for life.

Jumbo loans have also gotten comparatively cheaper. As the Federal Housing Finance Agency (FHFA), which regulates Fannie and Freddie, seeks to boost the two agencies’ reserves against losses from mortgage defaults, it has raised fees and other costs for borrowers, according to Terry Francisco, a Bank of America spokesman.

One would think that these lower rates would help the home sales market in price ranges above $400,000. That segment of the market is still struggling in Flagstaff home sales, largely due to oversupply. Check out currently listed Flagstaff homes in the over $400,000 price category.

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Flagstaff home

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Jumbo mortgages now carry cheaper rates than traditional loans – Source article