Mortgage rates increase slightly

Most mortgage rates went up this week, but that was almost beside the point in the country's expensive housing markets. Finally, the rates on the new jumbo-conforming loans went down.

The abrupt and substantial decline in jumbo-conforming rates could unfetter a herd of eager refinancers who have been waiting since the beginning of April for this opportunity. Many of them seek the stability of fixed-rate loans, and they will refinance out of jumbo adjustables.

But that's only a minority of borrowers. For the majority, this week marked a return to rising mortgage rates. In Bankrate's weekly mortgage survey, the benchmark 30-year rate has risen in four of the last five weeks.

The benchmark 30-year fixed-rate mortgage rose 6 basis points, to 6.19 percent, according to the Bankrate.com national survey of large lenders.

A basis point is one-hundredth of 1 percentage point.

The mortgages in this week's survey had an average total of 0.39 discount and origination points. One year ago, the mortgage index was 6.32 percent; four weeks ago, it was 6.03 percent.

The benchmark 15-year fixed-rate mortgage rose 7 basis points, to 5.78 percent. The benchmark 5/1 adjustable-rate mortgage fell 1 basis point, to 5.86 percent. The benchmark 30-year fixed jumbo, for large loans, rose 6 basis points, to 7.41 percent.

Jumbo limits reset

Folks felt more upbeat in the jumbo-conforming arena. At the dawn of this year, and for many years before, mortgages could be divided into two pastures of unequal size.

The big field consisted of conforming loans, which can be bought by enterprises such as Fannie Mae and Freddie Mac, and have a maximum amount, which varies annually according to home price appreciation. This year, that maximum was $417,000.

The smaller, greener, side of the fence consisted of jumbo mortgages -- loans for more than $417,000. Jumbo loans typically have higher rates than conforming mortgages; since last summer the difference has been substantial -- more than a percentage point.

The landscape changed this spring, when policymakers set aside a little corral inside the jumbo mortgage pasture: the jumbo-conforming loan. These are mortgages for areas with high housing costs. The idea was that mortgages above $417,000, but below a certain limit, were to be treated as conforming loans, with similar rates and terms.

It hasn't quite turned out as planned. First of all, things aren't as simple as they used to be, because the new loan limits vary by metro area. In Philadelphia, the jumbo-conforming limit is $420,000 -- just a $3,000 increase from the $417,000 conforming limit. In the most expensive markets, such as in San Francisco, the jumbo-conforming limit is $729,750. Other expensive markets are in between. And in most places, there are no jumbo-conforming loans because the conforming limit remained $417,000.

Second, the jumbo-conforming loans have tighter underwriting guidelines than conforming loans. They're harder to qualify for, and the restrictions will reduce the number of borrowers who can get the loans.

Jumbo rates decline

Just as important, lenders didn't give much of a break on rate at first. Rates on jumbo-conforming loans were almost as high as those for jumbos. Would-be borrowers sat on the fence, waiting for jumbo-conforming rates to fall, as expected.

For about six weeks, jumbo-conforming rates didn't fall. In early May, Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, said he would subpoena mortgage executives to appear before his committee to explain why. It didn't take long for Fannie Mae to announce a reduction in jumbo-conforming rates.

Now lenders aren't quoting much difference between conforming and jumbo-conforming rates. Depending on whom you ask and what day it is, the rates are about equal or the jumbo-conforming rate is an eighth- or a quarter-point higher. Jumbo-conforming rates tumbled half a percentage point -- or more -- overnight. That's what the fence-sitters were waiting for.

"Yesterday we had the single biggest origination day that we've had in probably three months, maybe four months," says Jeff Lazerson, president of MortgageGrader.com, an online brokerage.

"It was all those borrowers who were in that range above conforming and below the regular jumbo. Those people have been waiting and waiting for rates to go down and now they're coming down."

Dick Lepre, a loan officer with Residential Pacific Mortgage in San Francisco, says a lot of homeowners with jumbo ARMs have been waiting to refinance into fixed-rate jumbo-conforming loans -- even if the new rates are higher. They're worried about how high those adjustables would go in future years, "and they're seeking the safety of a fixed."