In what is seen as defensive posturing, mortgage lenders have decided to increase the mortgage rates on jumbo loans. Jumbo loans are considered non-conforming loans as opposed to conforming loans. The conforming loan threshold is set by two of the largest secondary market lenders, Fannie Mae (FNMA) and Freddie Mac (FHLMC).

Single-Family Mortgage Conforming Loan limits effective January 1, 2007*:

First mortgages

• One-family loans: $417,000
• Two-family loans: $533,850
• Three-family loans: $645,300
• Four-family loans: $801,950

Note: One- to four- family mortgages in Alaska, Hawaii, Guam, and the U.S. Virgin Islands are 50 percent higher than the limits for the rest of the country.

* Source: Fanniemae.com

Home loans that exceed the threshold limits of the above mentioned loan amounts are considered non-conforming loans. Hence, jumbo mortgages are considered non-conforming loans.

In general, the average interest rates on jumbo home loans are higher than typical conforming mortgages. The mayhem in the home loan mortgage market is beginning to squeeze high-end home buying consumers with good credit records, in the latest indication of rising unease among investors and mortgage lenders.

The average interest rate being charged by mortgage lenders for a prime 30-year fixed-rate jumbo loan was 7.34%, up from an average of 7.1% last week. This sudden increase in interest rates during the last few weeks is noteworthy because rates on 10-year Treasury bonds have been declining. Usually, mortgage interest rates run in the same direction as Treasuries. This behavior may be the result of many jittery investors abandoning mortgage securities.

The reason jumbo home loans have higher rates than conforming home loans is because Fannie Mae and Freddie Mac purchase only mortgage loans that are conforming. In turn these conforming mortgages are bundled for sale in the secondary market, leading to a decline in market demand for non-conforming loans. The lessening market demand makes it difficult for lenders to sell jumbo non-conforming loans. Herein, the mortgage lenders pass on the cost onto the borrowers in the form of charging higher rates for mortgage loans.

Even with naturally higher rates for jumbo loans, mortgage lenders are still charging higher rates than typical to prime borrowers. Consumers with good credit are not receiving the benefit of lower mortgage rates. Jumbo loans are not able to escape the mortgage malaise borne out of the subprime mortgage grave.

The funerals of many mortgage brokers and mortgage lenders have been written in obituary columns across the nation. A new entry might be added soon, American Home Mortgage Investment Corp. ultimately submitted to the mortgage mayhem and filed for Chapter 11 U.S. bankruptcy protection from creditors. The tenth largest mortgage lender in the U.S. finally succumbed to financial pressures caused by defaulting subprime mortgage loans.

The mortgage ripple has also led to two Bears Stearns funds going under; High-Grade Structured Credit Enhanced Leveraged Fund, valued at about $638 million and the High-Grade Structured Credit Fund, worth about $925 million lost their value in July.

With mortgage lenders skittish, investors jumpy, and homebuyers staying on the sidelines; it is a wonder how high-end home loan borrowers were able to avoid affliction from the housing-mortgage malaise for so long.