So What Exactly Is Going On With Jumbo Loans?

You might have heard how difficult it is to get a jumbo loan.  You might even be confused now on what a jumbo loan actually is – and there’s reason for that confusion.   The reason is that the concept of a jumbo loan means two very different things based on whether you are working with a big bank/government-backed bank or a Main Street bank that doesn’t receive government help.

When Freddie Mac and Fannie Mae were seized by the government, the housing market was seized by a downturned economy, even though these two events were not necessarily the result of the other.  But right before this happened, Freddie Mac and Fannie Mae were the primary mortgage lenders in the nation.

The problem associated with jumbo loans has been several years in the making.  First, before 2008, when Freddie Mac and Fannie Mae were the primary lenders, their limits were set at a $417,000 conforming mortgage loan limit. This meant that if you wanted a loan for more, you’d have to go to smaller banks to get it because Freddie and Fannie were put under budget limits by their government funding.

Then, after the global economic downturn in 2008 and the fears of economic collapse shortly followed, no one was lending anything that wasn’t government backed, so Freddie Mac and Fannie Mae were the potential homeowners’ only choices.

After the government seized both lenders, it recognized the need to remove these caps because of the enormous disparity in home prices throughout the country.  The limits were stalling the mortgage markets in some cities, such as San Francisco, where home prices were typically well over the $417,000 limit.  It attempted to make changes by increasing the limit, but these changes only took effect in some of the most obvious cities. This left other consumers without many options if they happened to live elsewhere and wanted maybe a bigger home, or more land.

Now that Main Street banks are more comfortable with lending, and the economy is on a slow but steady upswing, you will find that there are more small-town banks willing to take on jumbo loans and are offering great rates to prove it.