by Calculated Risk on 10/08/2007 05:51:00 PM

From Fannie Mae chief economist David Berson's Weekly Commentary

"... lenders reported a lack of investor demand for high credit quality jumbo mortgages and other mortgages not eligible for agency purchase. This dislocation pushed the cost of prime jumbo financing significantly higher relative to rates on conforming loans. Figure 1 shows the spread between rates being offered by lenders on prime jumbo and prime conforming 30-year fixed-rate mortgages. In mid-August this spread spiked to above 90 basis points after fluctuating between 15 and 25 basis points for the prior year-and-a-half (about equal to its historic spread). This spread has moderated somewhat over the past couple of weeks, however, and fell below 80 basis points in late September, suggesting some modest improvement in the market conditions for prime loans with balances above the conforming loan limit. Even so, the spread remains historically wide -- suggesting that the prime jumbo market remains in distress."

The key sentence: "the spread remains historically wide -- suggesting that the prime jumbo market remains in distress."