Jumbo Mortgages

When the government insures a mortgage through either the Federal Home Loan Mortgage Corporation (Freddie Mac) or the Federal National Mortgage Corporation (Fannie Mae), there are guidelines specified which mortgage lenders must comply with. Loans that follow these guidelines are called conforming loans. As specified elsewhere in the website, the current lending limit for a conforming loan is $417,000. In today's housing market it is becoming increasingly difficult to find suitable housing and remain under this lending limit.

Jumbo Mortgages, simply speaking, are those with a loan amount above conventional Loan limits. Because they exceed the Fannie Mae and Freddie Mac guidelines they are classified as non-conforming loans. Home buyers looking for mortgages above the $417,000 threshold have to look elsewhere for lenders. To fill this gap, large investors such as insurance companies and banks step it to fill the need with maximum mortgage amounts going to the $1 million level or more. The average interest rates are typically greater than those for conforming mortgages and vary depending on property types and mortgage amounts. The increasing need for Jumbo Loans is currently related to what some call the 'housing bubble' where property values are escalating rapidly.

The Housing Bubble:

After more than twenty years in the real estate business, including five with the Resolution Trust Corporation, I have only recently heard the term 'housing bubble'. It has become a household word but no one seems to be able to define it. The first definition I heard was that it was the difference between what someone would pay for renting a home and what someone would be willing to pay to purchase a similar home. The wider this disparity the greater the 'bubble'.

Probably a better definition is the 'bubble' is characterized by rapid increases in the valuations of real estate property until they reach an unsustainable level relative to the market areas income and other economic conditions. At some point the buyers stop buying and sellers begin to reduce their prices or take the home off the market. No one is predicting a real estate crash, although some individuals who purchased their home at the market peak may find themselves with more equity in their home than the market will bear. This is considered only a short term problem as the real estate market just has to catch up. Historically, real estate values rise about 5 - 7% per year but you have to wait out the 'bubble'.

The term 'housing bubble' is a media term used by economists and newscasters. Realtors describe this inflation with their own terms: Buyer's Market versus Seller's Market.