Now, troubles in the mortgage industry is spreading and going upscale. Lenders are demanding a bigger premium for so-called jumbo home loans, as NPR's Scott Horsley explains.

SCOTT HORSLEY: A jumbo mortgage is one that's bigger than $417,000, the maximum that can be guaranteed by the government-backed agencies Fannie Mae and Freddie Mac. Because of this, jumbo loans typically carry a slightly higher interest rate than smaller loans. But this month the gap widened to nearly a full percentage point.

The average rate on a 30-year jumbo loan is now well over 7 percent, with some banks charging as much as 10 percent.

Greg McBride of says even though jumbo loans haven't been plagued by a rash of defaults like subprime mortgages, the investors who bankroll the loans are still nervous.

Mr. GREG McBRIDE (Senior Financial Analyst, Investors ultimately drive the bus in terms of what credit is available in the mortgage market and at what price.

HORSLEY: The higher interest rate adds hundreds of dollars a month to the cost of a jumbo loan. That's a challenge in high-priced areas of the country where even a modest house can cost more than $417,000.

Mr. McBRIDE: Places like California, much of Florida, the northeast, Washington, D.C. are higher-cost housing markets where more borrowers take jumbo-sized loans because the price of homes is so much higher.

HORSLEY: Some policy makers want to allow Fannie and Freddie to guarantee those larger loans in hopes of giving borrowers a break. The government agencies already back super-sized loans in Alaska, Hawaii and Guam.

Scott Horsley, NPR News.

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