Chat
Chat with Sales Hours: Monday-Friday 8:30 a.m. - 4:30 p.m. (CST)
Contact Sales
Call Sales Toll-Free 1-(866) 774-3282 Hours: Monday-Friday 7 a.m. - 5 p.m. (CST)
Product Login
Product Log-in
Product Support
Product Support
Email Sales
Contact Sales
After Hours
  • Support
  • Sign In Sign In
  • AUS NZ UK
CoreLogic - Home
  • Solutions
    view solutions by:

    Data Solutions

    • Lead Generation
    • Property Data
    • Location Intelligence

    Real Estate

    • Multiple Listing Enterprise
    • Agent & Broker

    Mortgage

    • Origination
    • Servicing
    • Appraisal
    • Commercial Property Tax

    Insurance

    • Hazard Risk
    • Catastrophe Risk Management
    • Risk Evaluation
    • Underwriting Automation
    • Weather
    • Claims Automation
    • Restoration
    • INTRCONNECT

    Mortgage Lenders

    • Origination

    Mortgage Servicers

    • Residential Property Tax
    • Default & Loss Mitigation
    • Portfolio Insight & Monitoring

    Mortgage Appraisers

    • Appraisal

    Real Estate Agents & Brokers

    • Agents & Brokers

    Real Estate MLS

    • Multiple Listing Enterprises

    Commercial Real Estate Owners

    • Commercial Property Tax

    Marketing Departments

    • Property Data

    Insurance Underwriters

    • Risk Evaluation
    • Underwriting Automation
    • Hazard Risk
    • Catastrophe Risk Management

    Insurance Risk Managers

    • Risk Evaluation
    • Hazard Risk
    • Catastrophe Risk Management

    Insurance Claims

    • Claims Automation
    • Restoration Contractors
    • Weather Verification

    Construction Contractors

    • Restoration Contractors

    General

    • Location Intelligence
    • Lead Generation
    • Data Solutions
  • Resources

    Reports

    • Climate Change
    • Construction Cost Update
    • Construction Insights
    • Home Price Insights
    • Homeowner Equity Insights
    • Loan Performance Insight
    • Mortgage Fraud
    • Property Tax Delinquency
    • Single-Family Rent Index

    Insight Blogs

    • Hazard HQ
    • Office of Chief Economist
    • Affordable Housing
    • Homebuying
    • Insurance
    • Other Articles

    More Resources

    • Events
    • Case Studies
    • White Papers
    • Podcasts
    • Quick Takes
  • Company
    • About
    • Leadership
    • Newsroom
    • Contact
    • Careers
  • Search
CoreLogic - Home
  • Solutions
  • Resources
  • Company

    • About
    • Leadership
    • Newsroom
    • Contact
    • Careers
  • Accounts

    • Products Sign-in
  • Contact

    • Sales Contact
    • Product Support
  • Regions

    • Australia
    • New Zealand
    • United Kingdom
  • Social

    • Facebook
    • Instagram
    • Linkedin
    • Twitter
    • Youtube
Solutions
VIEW BY:
  • Data Solutions

    • Lead Generation
    • Property Data
    • Location Intelligence
  • Real Estate

    • Multiple Listing Enterprise
    • Agent & Broker
  • Mortgage

    • Origination
    • Servicing
    • Appraisal
    • Commercial Property Tax
  • Insurance

    • Hazard Risk
    • Catastrophe Risk Management
    • Risk Evaluation
    • Underwriting Automation
    • Weather
    • Claims Automation
    • Restoration
    • INTRCONNECT
  • Mortgage Lenders

    • Origination
  • Mortgage Servicers

    • Residential Property Tax
    • Default & Loss Mitigation
    • Portfolio Insight & Monitoring
  • Mortgage Appraisers

    • Appraisal
  • Real Estate Agents & Brokers

    • Agents & Brokers
  • Real Estate MLS

    • Multiple Listing Enterprises
  • Commercial Real Estate Owners

    • Commercial Property Tax
  • Marketing Departments

    • Property Data
  • Insurance Underwriters

    • Risk Evaluation
    • Underwriting Automation
    • Hazard Risk
    • Catastrophe Risk Management
  • Insurance Risk Managers

    • Risk Evaluation
    • Hazard Risk
    • Catastrophe Risk Management
  • Insurance Claims

    • Claims Automation
    • Restoration Contractors
    • Weather Verification
  • Construction Contractors

    • Restoration Contractors
  • General

    • Location Intelligence
    • Lead Generation
    • Data Solutions
Resources
  • Reports

    • Climate Change
    • Construction Cost Update
    • Construction Insights
    • Home Price Insights
    • Homeowner Equity Insights
    • Loan Performance Insight
    • Mortgage Fraud
    • Property Tax Delinquency
    • Single-Family Rent Index
  • Insight Blogs

    • Hazard HQ
    • Office of Chief Economist
    • Affordable Housing
    • Homebuying
    • Insurance
    • Other Articles
  • More Resources

    • Events
    • Case Studies
    • White Papers
    • Podcasts
    • Quick Takes

Home / Intelligence / Jumbo-Conforming Mortgage Rate Spread Widened During the Pandemic

ABOUT THE AUTHOR
Archana Pradhan
Archana Pradhan
Principal, Economist, Office of the Chief Economist
View Profile
  • November 4, 2020

Jumbo-Conforming Mortgage Rate Spread Widened During the Pandemic

Spread highest in last 7 years after adjusting for risk, location, and loan-size


The COVID-19 pandemic has had a big effect on the mortgage market.  Along with a drop in mortgage rates to a record low, the jumbo-conforming mortgage rate spread has also been affected. Before 2013 mortgage rates for jumbo loans were higher than for conforming loans. However, in 2013 the rate-difference fell, and jumbo rates have averaged 5 basis points lower than conforming during 2013-2019. The jumbo-conforming mortgage rate spread has widened during the pandemic to the highest level in seven years.

Figure 1: Mortgage Rate versus Jumbo-Conforming Spread
Correlation Coefficient: -0.65 (April 2013 – June 2020)

An increase in GSE guarantee fee, a reduction in the GSE funding advantage, and portfolio lenders’ desire to hold jumbo loans explain much of the variation in the jumbo-conforming spread in the past.[1]Movement in interest rates may also help explain some of the variation in the jumbo-conforming spread, especially since 2013. The mortgage rate and the jumbo-conforming rate spread are inversely correlated (Figure 1).[2] For example, as the mortgage rate dropped during the first eight months of 2019 the spread has gone up.  As the mortgage rate dropped the refinance application volume jumped up; because of a limited secondary market for jumbo loans and cutbacks in staffing at many lenders, bottlenecks in jumbo-loan production were reflected in a rise in the spread. Moreover, during the pandemic the mortgage rate dropped further reaching a series of record lows as the Federal Reserve eased monetary policy to curb the economic crises. Thus, the drop in mortgage rates during the pandemic has been one reason the unadjusted spread has gone up (but still below zero).

Figure 2: Adjusted Quarterly Jumbo-Conforming Spread Estimates, 2001 Q1-2020 Q2 (Average 2013 – 2019 was -5 Basis Points)

However, after controlling for borrower and loan credit risk, home location, and loan size characteristics, the spread is above zero (Figure 2).[3] The overall pattern of adjusted spread followed the pattern of unadjusted spread. The adjusted estimates show that the spread reversed from negative 8 basis points (with no adjustments for differences in attributes) to 11 basis points for the adjusted estimate in the second quarter of 2020. The adjusted spread widened by 8 basis points from the second quarter of 2019 to the second quarter of 2020. The refinance boom as a result of a record low mortgage rate and lenders’ increased caution in the jumbo market because of economic uncertainty are likely behind the rise in the spread during the pandemic.[4] The Q2 2020 mortgage rate spread was the highest since Q2 2013.

Figure 3: Averages Credit Risk Variables for Homebuyers with 30-Year Fixed Conventional Mortgages 

In general, today’s jumbo loans have a higher credit underwriting standard than conforming loans (Figure 3). Nearly all jumbo loans were full doc and made to prime borrowers, lowering credit risk across two dimensions. Comparing jumbo and conforming loans originated in 2020, jumbo loans had higher average credit scores by 26 points, lower LTV by 7 percentage points and lower DTI by 2 percentage points. These differences help account for much of the jumbo-conforming spread over the past several years.

Despite the higher-standard of jumbo loans and risk-based pricing, the spread was higher during the pandemic as lenders were curbing their appetite for jumbo loans.[5] With the market uncertainty and an increased risk, in addition to the surge in refinance applications, some lenders even suspended offering jumbo loans. As per MBA, jumbo credit availability fell by about 59% compared with pre-pandemic.[6]  

©2020 CoreLogic, Inc. All rights reserved.

[1] See AEI working paper https://www.aei.org/research-products/working-paper/jumbo-rates-rates-causes-implications/

and https://www.corelogic.com/blog/2018/08/why-are-jumbo-loans-cheaper-than-conforming-loans.aspx

[2] Only 30-year fixed-rate conventional home-purchase loans were included for both conforming mortgage loans and jumbo mortgage loans for this analysis.

[3] Figure 2 plots the estimates for the jumbo-conforming spread from the regression equation ran for each quarter. For detail please see https://www.corelogic.com/blog/2018/10/jumbo-conforming-spread-risk-location-scale-economies-affect-rate.aspx

However, after controlling for borrower and loan credit risk, home location, and loan size characteristics, the spread is above zero (Figure 2).[3] The overall pattern of adjusted spread followed the pattern of unadjusted spread. The adjusted estimates show that the spread reversed from negative 8 basis points (with no adjustments for differences in attributes) to 11 basis points for the adjusted estimate in the second quarter of 2020. The adjusted spread widened by 8 basis points from the second quarter of 2019 to the second quarter of 2020. The refinance boom as a result of a record low mortgage rate and lenders’ increased caution in the jumbo market because of economic uncertainty are likely behind the rise in the spread during the pandemic.[4] The Q2 2020 mortgage rate spread was the highest since Q2 2013.

Figure 3: Averages Credit Risk Variables for Homebuyers with 30-Year Fixed Conventional Mortgages 

In general, today’s jumbo loans have a higher credit underwriting standard than conforming loans (Figure 3). Nearly all jumbo loans were full doc and made to prime borrowers, lowering credit risk across two dimensions. Comparing jumbo and conforming loans originated in 2020, jumbo loans had higher average credit scores by 26 points, lower LTV by 7 percentage points and lower DTI by 2 percentage points. These differences help account for much of the jumbo-conforming spread over the past several years.

Despite the higher-standard of jumbo loans and risk-based pricing, the spread was higher during the pandemic as lenders were curbing their appetite for jumbo loans.[5] With the market uncertainty and an increased risk, in addition to the surge in refinance applications, some lenders even suspended offering jumbo loans. As per MBA, jumbo credit availability fell by about 59% compared with pre-pandemic.[6]  

©2020 CoreLogic, Inc. All rights reserved.

[1] See AEI working paper https://www.aei.org/research-products/working-paper/jumbo-rates-rates-causes-implications/

and https://www.corelogic.com/blog/2018/08/why-are-jumbo-loans-cheaper-than-conforming-loans.aspx

[2] Only 30-year fixed-rate conventional home-purchase loans were included for both conforming mortgage loans and jumbo mortgage loans for this analysis.

[3] Figure 2 plots the estimates for the jumbo-conforming spread from the regression equation ran for each quarter. For detail please see https://www.corelogic.com/blog/2018/10/jumbo-conforming-spread-risk-location-scale-economies-affect-rate.aspx

[4] In general, lenders typically retain the risk because the secondary mortgage market for jumbo mortgages is less developed than for conforming.

[5] Risk-based pricing is the process through which lenders tend to charge premiums for higher-risk mortgages and lower rates for lower-risk loans.

[6] See https://www.mba.org/news-research-and-resources/research-and-economics/single-family-research/mortgage-credit-availability-index

  • Category: Blogs, Intelligence, Office of the Chief Economist
  • Tags: Jumbo Loans, Mortgage, Pandemic
ABOUT THE AUTHOR
Archana Pradhan
Archana Pradhan
Principal, Economist, Office of the Chief Economist
View Profile

Related Posts

Tornado footprints in Southern California captured by CoreLogic's weather verification technology as viewed in CoreLogic Reactor™.
Blogs

A Rare Los Angeles Tornado and Near Hurricane-Force Winds in San Francisco

CoreLogic Weather Verification Services captured wind and tornado footprints from the severe weather system in California.

March 24, 2023
atmospheric rivers california
Core Conversations

What Was it Really Like to Live Through the California Floods? Our Team Spills

A Conversation With Kent David and Tom Larsen Since the beginning of the year, California has been drenched by atmospheric rivers. The flooding in California

March 22, 2023
Ecuador earthquake
Blogs

M6.8 Earthquake Near the Coast of Ecuador

CoreLogic estimates that insurable losses from the Ecuador earthquake will be up to $600 million.

March 21, 2023

About Corelogic

  • Newsroom
  • Leadership
  • Careers
  • Ethics & Compliance

Accounts

  • Products Sign-in

Contact

  • Sales Contact
  • Product Support

Regions

  • CoreLogic Australia
  • CoreLogic New Zealand
  • CoreLogic UK

Follow & Connect

  • Facebook
  • Instagram
  • Linkedin
  • Twitter
  • YouTube
© 2023 CoreLogic. All rights reserved.
  • Legal
  • Privacy Policy
  • CCPA
  • Cookie Preferences
  • Security
  • Sitemap
  • Accessibility
  • Legal
  • Privacy Policy
  • CCPA
  • Cookie Preferences
  • Security
  • Sitemap
  • Accessibility