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 Bankrate.com 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, Bankate.com): 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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