Product Code Database
In the United States, a jumbo mortgage is a mortgage loan that may have high credit quality, but is in an amount above conventional conforming loan limits.Lemke, Lins and Picard, Mortgage-Backed Securities, Chapter 3 (Thomson West, 2013 ed.). This standard is set by the two government-sponsored enterprises (GSE), Fannie Mae and Freddie Mac, and sets the limit on the maximum value of any individual mortgage they will purchase from a lender. Fannie Mae (FNMA) and Freddie Mac (FHLMC) are large agencies that purchase the bulk of U.S. residential mortgages from banks and other lenders, allowing them to free up liquidity to lend more mortgages. When FNMA and FHLMC limits don't cover the full loan amount, the loan is referred to as a "jumbo mortgage". Traditionally, the interest rates on jumbo mortgages are higher than for conforming mortgages, however with GSE fees increasing, Jumbo loans have recently seen lower interest rates than conforming loans.
, the limit on a conforming loan in "general" areas was $417,000 for most of the US, apart from Alaska, Hawaii, Guam, and the U.S. Virgin Islands, where the limit was $625,500. The limit in "high cost" areas was $729,750 and $938,250, respectively.
On October 1, 2011, the jumbo conforming limit of $729,750 in "high cost" areas was reduced to $625,500.
On November 28, 2017, the US Federal Housing Finance Agency (FHFA) announced that the ceiling loan limit for one-unit properties in most high-cost areas will be $679,650 — or 150 percent of $453,100.
Many of these new loans were 40- or 50-year amortization, or had an interest-only option, similar to subprime loans. That meant that the jumbo loan borrower would pay the loan back over a longer period of time, or could defer any repayment of principal for a few years (thereby also increasing the total amount to be paid back). However from 2007, as prices fell and the number of rose, lenders turned away from providing jumbo mortgages. Home buyers find it's harder to get jumbo loans amid credit crunch San Francisco Chronicle, August 17, 2007 Lenders that did remain in the jumbo loan market increased rates sharply, with rates up to 1.5 percentage points higher than for conforming loans. Calif. home sales plunge in January Forbes.com, February 14, 2008 This withdrawal from the market led to a lack of lending available to fund the purchases of expensive homes, thus putting further downward pressure on house prices and completing a vicious circle. Many Lenders Making Jumbo Loans Have Demanded Higher Rates Gainesville Sun, September 6, 2007
The delinquency rate on jumbo loans rose dramatically, tripling over the course of 2009, and by February 2010, almost one in ten jumbo mortgages were 'seriously delinquent' (i.e. in arrears by at least 60 days). Jumbo Mortgage ‘Serious Delinquencies’ Rise to 9.6% - Bloomberg.com, February 8, 2010
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