Do you know why jumbo mortgages are so cheap?

RealtyTrac says jumbo loans are now cheaper than conventional loans. It may not make sense, until you look deeper at what is really going on.

In this story, RealtyTrac outlines that what you are seeing is really an effort to prevent marketplace competition. The government wants to shift the mortgage business to Wall Street. This is what the White House explained last month.

“The current housing finance system, where the government guarantees more than 80 percent of all mortgages through Fannie Mae and Freddie Mac and FHA, is unsustainable. A reformed system must have a limited government role, encourage a return of private capital, and put the risk and rewards associated with mortgage lending in the hands of private actors, not the taxpayers.”

Ok, what does that mean exactly?

“The powers that be don’t want Fannie and Freddie to exist anymore, and they see increasing the g-fees as a means to that end,” wrote David Dayen on NakedCapitalism.com last September.

In the end, what’s really happened is that the  cost of conventional financing has risen in an effort to make Fannie Mae and Freddie Mac less competitive to “put the risk and rewards associated with mortgage lending in the hands of private actors.” This has been done by government action; the free market idea of having private players offer better products and lower prices to gain profits and market share has been ignored.

Read the full story here.