Video: Jumbo loan fears

msnbc.com
updated 8/7/2007 2:15:53 PM ET 2007-08-07T18:15:53

Turmoil in the U.S. home-mortgage market is starting to pinch even buyers of high-end homes with good credit records, according to a report in Tuesday’s Wall Street Journal.

The reason is a surge rates on so-called “jumbo” loans — the latest sign of rising anxiety among lenders and investors. The move up is particularly notable because rates on 10-year Treasury bonds have been falling, the Journal said, and normally mortgage rates move in tandem with Treasurys.

But market jitters have caused investors to ditch mortgage securities the newspaper said. Adding to investors concerns: American Home Mortgage Investment filed for bankruptcy Monday, hit by the chaos in the mortgage market in recent weeks.

Lenders, which have already slashed lending to subprime borrowers with weak credit records, are now raising rates on jumbo mortgages for prime borrowers the Journal said.

These mortgages exceed the $417,000 limit for loans eligible for purchase and guarantee by Fannie Mae and Freddie Mac, government-backed entities authorized to make loans and loan guarantees, the report said, and they account for about 16 percent of the total mortgage market.

These home loans are most prevalent in California, New Jersey, New York City, Washington, D.C., and other locales with high home costs, the paper said.

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