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Freddie Mac, Banks Reach Deals on Jumbo Mortgages

By Jody Shenn
Bloomberg News
Friday, April 18, 2008

Freddie Mac reached agreements with Wells Fargo, J.P. Morgan Chase, Citigroup and Washington Mutual that may boost originations of larger home loans.

The government-chartered mortgage company agreed to say how much it will pay for bigger loans or charge to guarantee related bonds as many as 90 days ahead of sales or securitizations, said Bob Ryan, the McLean company's vice president of mortgage-credit pricing.

District-based Fannie Mae said it has offered similar purchase programs to "lenders large and small" since April 1.

Freddie Mac's new programs will enable lenders to offer lower interest rates by allowing them to "hedge their conforming jumbo pipelines," or loans bigger than $417,000 that they're in the process of making, Ryan said.

Freddie Mac's deals cover the bigger loans that it and Fannie Mae are temporarily permitted to finance under an economic stimulus package passed by Congress in February. The loans can be as big as $729,750 in some areas.

"These new conforming jumbo mortgages will reduce homeownership costs for families in high-cost areas," David B. Lowman, the head of J.P. Morgan's mortgage unit, said in a statement from Freddie Mac yesterday.

Freddie Mac has already purchased some pools of jumbo loans, Ryan said, and it expects to buy or guarantee $10 billion to $15 billion this year. Freddie Mac's new programs are "much more consistent" with how it normally buys smaller loans than with how it's been buying the big loans so far, he said.

On the larger loans Freddie Mac will buy, consumers will probably pay interest rates 0.50 percentage point to 0.75 percentage point higher than on smaller mortgages, Ryan said.

The yield that Fannie Mae requires on conforming jumbo mortgages is 0.39 percentage points higher than on comparable smaller loans, said spokesman Brian Faith.


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