End of Jumbo Mortgages Could Bump Up High-End Sales for Summer

In October of this year, government-controlled Fannie Mae and Freddie Mac will stop making expensive, “jumbo” loans of more than $625,500. Analysts predict that this deadline could cause purchases in high-end properties with hefty price tags to spike in the coming months as borrowers rush to beat the deadline and avoid huge down payments on their new homes[1]. Currently, Fannie and Freddie will make mortgages in amounts up to $729,750. Once the new regulations go into effect, lenders who make loans in excess of $625,500 will have to hold the mortgage themselves or find a private lender to purchase it, which means that the down payments on high-priced homes are likely to skyrocket this fall.

Many experts in the mortgage industry do not believe that the GSEs’ exit from jumbo loans will have a major effect on borrowers’ ability to get high-priced loans, citing increased private lending performance in the sector already as an indication that “the mortgage industry will…find a way to deal with these new rules because they will go out of business if they don’t,” as realtor Linda Chaletsky put it[2]. These same analysts point out that jumbo loan limits have only exceeded $418,000 for the last three years or so anyway, and private lenders are already moving to fill the gap. In the fourth quarter of 2010, private lenders accounted for more jumbo loans that Fannie and Freddie, indicating that the market is already moving to compensate for the new regulations, points out Inside Mortgage Finance’s Guy Cecala.

Do you think that phasing out jumbo loans is a good move for the GSEs?

Real Estate Market