A well-placed source at one of the country’s biggest financial firms has told me that his firm has decided not to write any jumbo mortgages at all in the immediate future. (Jumbo mortgages are those over $417,000 — the limit at which Freddie Mac and Fannie Mae will securitize them.) Nobody, he says, is buying the mortgages to securitize them and the firm prefers not to have them on its own books. If this spread, it will make it very hard for anybody to get these mortgages. The spread between their interest rates and conforming mortgages could become enormous. On the other hand, bankrate.com does list dozens of companies that claim to be making such loans in the area where I live in Northern Virginia. So I’m not convinced that the crisis has really bubbled down to consumers yet.
Still, if this is true, then we can expect enormous pressure to let Freddie and Fannie securitize larger mortgages too. Which would, of course, create a larger state subsidy for Freddie and Fannie stockholders as well as the well-off people who take out jumbo loans. What a great idea. . .NOT.