US lenders are offering rates on jumbo mortgages that are more than a quarter of a percentage lower than those on the conforming loans backed by Fannie Mae and Freddie Mac. According to the Mortgage Bankers Association, historically, banks charge higher rates on jumbo mortgage (about 0.25 percentage points more) than they do for conforming loans. However over the past couple of months, this pattern has been broken. This week, Wells Fargo (WFC, Fortune 500) promoted a 30-year jumbo mortgage at a rate of 4.125%, which is lower than the 4.5% rate it is offering for a 30-year, fixed-rate conforming loan. US Bank (USB, Fortune 500) is offering a jumbo for 3.875% this week compared with 4.25% for a conforming loan. And Chase’s (JPM, Fortune 500) jumbos have been running a quarter of a percentage point below conventional mortgages. “Never in my memory have jumbos been such a bargain,” said Peter Grabel, a loan officer with 13 years’ experience at Luxury Mortgage Corp. According to Malcolm Hollensteiner, head of consumer lending for TD Bank, one main reason jumbo rates are at low point is because lenders want to attract wealthy clients and hang on to them Once clients sign up for a mortgage so bank can “cross sell them other products, like brokerage services,” he said.This strategy works especially well in these days of strict underwriting standards as Keith Gumbinger, a mortgage expert with HSH.com says that “Borrowers have to open up their whole financial picture to lenders,” “They can see where there’s value, which they might be able to sell against.”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 Gumbinger. Even though this strategy is good for banks to attract long term client and build up close customer relationship; it is controversial and relates to business ethic. This change might ruin the original purpose of the mortgage and widen the social inequality between rich and poor. Do you see this unusual twist as a business ethic issue?
Twist, In An Unusual. “Jumbo Mortgages Now Carry Cheaper Rates than Traditional Loans.” CNNMoney. Cable News Network, 12 Nov. 2013. Web. 16 Nov. 2013. <http://money.cnn.com/2013/11/12/real_estate/jumbo-mortgages/index.html?iid=GM>.