The two main agencies that purchase mortgage debt in America have the nicknames of Fannie Mae, and Freddie Mac.   These agencies purchase well over half of all mortgages made by banks coast to coast, and the guidelines they use drive the loan types, and pricing for residential mortgages.  One important restriction that these agencies place on mortgages is that of “maximum loan size”.  They draw a line in the sand and limit the size of loan that they are willing to purchase from banks.

Although this loan size is subject to change every year, it has been the same for the last three, and is currently $417,000.  Any mortgage that exceeds this balance will NOT be purchased by these agencies, and as a result must be underwritten to the standards of whichever bank is considering making that JUMBO loan.

These non-agency conforming or JUMBO mortgages have been subject to the same pressures that all other non-conforming programs have been under.  The price of a fixed rate jumbo loan used to be just slightly higher than that of its non-jumbo fixed cousin, if regular mortgages were 6%, the jumbo fixed would be 6.25% for instance.  Well right now, at the time I write this 30 year fixed mortgages are 5.75%…. and the Jumbo fixed is 8.25%!!!  So you can see that spread has widened considerably.

The good news is that there are a few banks that will make these jumbo loans at competitive/reasonable rates.  The big trade off is that these loans will be approved completely at the bank’s discretion, and the process tends to take longer, and be a little more back and forth with the bank throughout.

Be sure that if you are buying or selling in the price range that would likely require a Jumbo loan,  just be ready to have a longer close period.  45 days to 60 days would not be uncommon.

Related posts:

1. Mortgage Wrap Up October 18 - It’s a Fixed Rate World
2. Zero down financing is dead… Long live Zero down financing
3. Mortgage Rate Update - October 24
4. Mortgage Market Guide for Week of March 10
5. Last chance to buy with No Money Down?

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