Goshen News, Goshen, IN

Business

April 25, 2014

A fading middle-class perk: lower mortgage rates

WASHINGTON — For three decades, the U.S. middle class enjoyed a rare financial advantage over the wealthy: lower mortgage rates.

Now, even that perk is fading away.

Most ordinary homebuyers are paying the same or higher rates than the fortunate few who can afford much more.

Rates for a conventional 30-year fixed mortgage are averaging 4.48 percent, according to Bankrate. For "jumbo" mortgages — those above $417,000 in much of the country — the average is 4.47 percent.

This trend reflects the widening wealth gap between the richest Americans and everyone else. Bankers now view jumbo borrowers as safer and shrewder bets even though conventional borrowers put less capital at risk.

Even as the overall U.S. housing recovery has slowed, sales of homes above $1 million have surged in the past year. Price gains have been so great in some areas that middle-class buyers are straining to afford even modest homes. They're also facing tighter lending rules, larger down-payment requirements and a shortage of houses for sale.

Used to be, rates for conventional mortgages would be 0.2 to 0.3 of a point below rates on jumbo mortgages. A decade ago, a conventional rate averaged 5.68 percent, a jumbo 5.97 percent. The advantage for middle-class borrowers was possible in part because government-chartered firms guarantee that lenders will be paid on a conventional mortgage even if a borrower defaults. No such guarantee exists for jumbos.

Two factors have caused the spread between conventional and jumbo rates to vanish:

• The government in 2012 began raising the fees it charges lenders for guaranteeing payments on conventional mortgages. Lenders passed along that increase to borrowers in the form of higher rates. The fees are meant to stop home buyers from once again borrowing more than they can afford — a trend that fueled the 2007 housing bust.

• Bankers say they've begun using mortgage rates to woo high-net-worth clients: Attractive rates on jumbos have become a way to secure additional business from those clients — from managing their investments to supplying a broad suite of financial services. What's more, those borrowers tend to be clustered in neighborhoods that lenders consider more stable.

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Poll

Classes at Goshen Community Schools and St. John the Evangelist Catholic School will begin the 2014-15 school year on Thursday, Aug. 7. School corporations throughout the state have been trending toward earlier start dates the past few years. When do you think school should start?

I think early August is a good time to start
I think later in August would be a good time to start
I think school should start after Labor Day
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