Lenders Offering Lower Rates for Larger Home Loans is Attracting Wealthy Home Buyers

For just about 30 years, lower mortgage rates were the lone financial edge the U.S. middle class had over affluent income earners.

Today, even that advantage is shrinking. The majority of everyday conventional buyers who gets a loan now has monthly payments the same or higher interest rates than the privileged group who are able to afford considerably more.
According to Bankrate, "jumbo" mortgages, loans over $417,000, in the vast majority of the country are running at 4.47 percent, while mortgage rates for a conventional 30-year fixed mortgage are averaging 4.48 percent.

The broadening gap of wealth between the richest Americans and everyone else is simply echoed by this diminished perk for the middle class. While conventional borrowers have lower capital at risk, banks look at jumbo borrowers as safer and less risky borrowers due to their higher income and liquid assets.

While the recovery in U.S. housing has sluggish growth, home sales in excess of $1 million have soared in the past 12 months. Thus may be attributed to stock market gains which has supplied the wealthy home buyer with more liquid assets. With that, all-cash transaction are now 40% of the market in many housing areas. Price gains have been so exorbitant in numerous areas that middle-class buyers are hard-pressed to qualify to buy a moderately-priced home. The main culprit many experts say to blame for affordability the shortage of homes for sale.

Two elements have triggered the spread between conventional and jumbo rates to disappear:
•The government in 2012 began raising the fees lenders must pay for guaranteeing payments on conventional mortgages. Lenders transferred that expense to borrowers by moving rates higher.

•Bankers say they've started utilizing attractive rates on jumbos to get more high-net worth clients and solicit related investments or other financial products. In addition, jumbo borrowers tend to be grouped in neighborhoods that lenders believe to be more stable.

Sales of homes surpassing $1 million jumped 7.8 percent in the last year. That was a direct contrast with a 7.5 percent drop in home-buying as a whole in that period, based on data from the National Association of Realtors.

Home prices have risen in areas that include San Francisco, Los Angeles, New York and Washington, which have higher limits for jumbo mortgages in comparison to the nation's average. Loans above $625,500 are the normal jumbos in these cities are for, approximately $200,000 more than the national average.

The median price of a two-bedroom home in San Francisco is $1.02 million, as reported by the real estate site Trulia. The median for New York City homes: $1.2 million.

Across the united states, only 2 percent of homes are priced that high.
In certain communities across California, like La Jolla, Santa Monica, and Santa Barbara there are no homes under the high jumbo loan limits.

Out of every 5 homeowners just about 1 continues to owe more on their mortgage than their homes are worth. Without home equity, they have little or no wealth, even as richer Americans have benefited from rising prices for stocks and upper-end real estate.

At the same time, the government has reduced its support for middle-class homeownership after having rescued two companies, Fannie Mae and Freddie Mac, that enabled lower rates. The housing meltdown ruined the GSE's Fannie and Freddie. Each was compelled into federal control at the cost of taxpayers.

To limit taxpayer exposure, Fannie's and Freddie's regulator required them to raise fees for guaranteeing mortgages. Those fee increases have boosted conventional mortgage rates and likely blunted the effectiveness of the Federal Reserve's efforts to keep rates low to invigorate the housing market and the economy.