A fading middle-class perk: lower mortgage rates - 13 WTHR Indianapolis

A fading middle-class perk: lower mortgage rates

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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.

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.

"Jumbo borrowers represent the holy grail of what financial institutions are pursuing: that much-desired, mass affluent consumer," said Greg McBride, a senior analyst at Bankrate.

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