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Jumbo loans have big problems

July 15, 2009 at 4:54 PM   |   Comments

WASHINGTON, July 15 (UPI) -- A lack of jumbo loans for top-priced homes is putting downward price pressure on the general U.S. housing market, a national housing expert said.

Lawrence Yun, chief economist for the National Association of Realtors said the housing market needs "recovery in all segments," USA Today reported Wednesday.

"If the high-end market weakens, those in the middle have to reduce prices," Yun said.

In the prolonged financial crisis, banks have become more reluctant to lend. On top of that, a federal program designed to help homeowners does not include homes worth more than $730,000.

Conforming loans -- worth up to $417,000 -- offer banks the greatest security, as these can be sold to government-sponsored enterprises the Federal Home Loan Mortgage Corp. or the Federal National Mortgage Association.

Freddie Mac and Fannie Mae will also buy conforming jumbo loans, generally valued between $417,000 and $729,750. But the definition of conforming jumbo loans varies from location to location, the newspaper said.

That leaves large segments of the market out of the loop -- unappealing to banks as the mortgages are hard to sell.

In 10 states plus the District of Columbia, jumbo loans account for at least 10 percent of all loans, the newspaper said.

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