“As rates have gone up along with fears of a recession, and especially so over the course of the last few weeks because of the debt ceiling crisis, banks have increased their risk-based pricing,” she told MPA during a telephone interview. “This means that the average margin of a 30-year fixed rate is somewhere between 1.75% and 2% over 10-year Treasury, and that margin has widened to well over 3%.”
Fears are not tied to data
By and large, such pricing increases aren’t tied to data but based solely on fear manifesting itself as aversion to risk, she suggested. “It’s not data-dependent, not anything dependent,” she said. “The banks have simply raised rates because they fear there is greater risk in lending and as long as the risk is perceived, it means mortgage rates are higher than they would be naturally based on where we are in terms of economic data.”
How that heightened aversion toward risk has manifested itself is not anecdotal but something Cohn has witnessed herself, she said.
“I have seen several lenders increase their rates,” she said. “They’re happy to keep them there figuring that if someone needs to come to them, they’ll come to them. If not, they’re happy not to make the loan. I have one bank now that has a seven-year fixed at 7%. That’s ridiculous.”
Jumbo loans may become less accessible to borrowers
This fear likely will lessen the accessibility of jumbo loans, she added: “Conforming loans can be sold to Fannie and Freddie, so there is a government entity that provides a place to sell those loans,” she said. “Jumbo loans do not have a Fannie or Freddie so they are either held as portfolio loans by lender or they’re sold to much more of a smaller secondary market, which is not as efficient as Fannie and Freddie.”
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