What Does the Future Hold for Jumbo Loans?

The private market is ready to fill the void when conforming limits on government-backed mortgages at Fannie Mae, Freddie Mac, and the Federal Housing Administration expire at the end of September 2011, Federal Reserve Chairman Ben Bernanke told the House Financial Services Committee on Wednesday.

On Oct. 1, the maximum mortgage amount in high-cost areas is set to drop from $729,750 to $625,500.

“As far as Fannie Mae and Freddie Mac are concerned, there is a tradeoff there between supporting the higher-priced homes and weaning the housing finance system off of unusual limits it was put under during the crisis,” Bernanke told the House committee. “I understand the private sector is taking at least a significant number of the jumbo mortgage market but at a higher cost.”

The National Association of Home Builders has said that it fears more than 17 million homes nationwide will become ineligible for more affordable federal funding when the loan limit expires.

While Bernanke acknowledges that jumbo loans will likely come “at a higher cost,” he said that needs to be kept in perspective.

“Mortgage rates on conforming loans are already near historic lows, hovering around 4.5 percent on the 30-year fixed,” he said.

Source: “Bernanke: Private Sector Ready for Conforming Loan Limit Drop,”