Biggest Buyers Hit Hard in Mortgage Fiasco

‘Jumbo’ loans dry up as subprime mess continues to spread
By Jonas Oransky,  Newser Staff
Posted Aug 12, 2007 11:50 AM CDT
A home is offered for sale in Riverside, Calif. Monday, July 23 2007. Mortgage defaults in California soared in the second quarter to the highest level in 10 years, the result of weak home sales and sagging...   (Associated Press)
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(Newser) – As the subprime mortgage mess spreads to homeowners beyond those with poor credit ratings, jumbo mortgages are under particular pressure, the New York Times reports.
An investment banker recently purchasing a $1.5 million home saw the interest rate spike from 8% to 13% in just three days. The rate for these mortgages is now higher than the rate for conventional 30-year mortgage.

Jumbo loans are those larger than the $417,000 limit on what Fannie Mae and Freddie Mac are allowed to buy, and the private market for mortgages securities has dried up. Particularly affected are the two coasts, where home prices are highest. “In California it has shut down the purchase market,”  a Bay Area broker reports.