Jumbo Loans

A jumbo mortgage is one with a loan amount exceeding the conforming loan limits set by the Office of Federal Housing Enterprise Oversight (OFHEO), and therefore, not eligible to be purchased, guaranteed or securitized by Fannie Mae or Freddie Mac. OFHEO sets the conforming loan limit size on an annual basis.

Jumbo loans are often securitized by institutions other than Fannie Mae or Freddie Mac. These securities carry more credit risk than those issued by Fannie Mae or Freddie Mac, and therefore, trade at a yield premium which translates into slightly higher interest rates. This premium jumped quickly when the ‘mortgage meltdown‘ caused the private mortgage market to buckle in 2007. However, in recent years the spread in interest rates between jumbo and conventional mortgages has been reduced, and Jumbo loans are more readily available today than at any point since 2007.

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