Freddie Mac,
Fannie Mae, and Ginnie Mae also
play a critical role in setting the cost of
mortgages.
Each
of these organizations sets limits on the size of the loan it
is willing to buy. Loans that qualify are called conforming loans,
and loans that exceed the limits fall into the category of jumbo
mortgages.
Interest rates
on conforming loans are typically one-quarter
to one-half a percentage point lower than the rate on jumbo mortgages.
One danger to watch out for are predatory lenders. These lenders charge exceptionally high fees and higher than market interest rates. They often target certain demographic groups, such as senior citizens, minorities, and low-income homebuyers.
In 2006, based upon an index of
housing prices established by the Federal Housing Finance
Board, the conforming limit was raised to $417,000 for
single-family mortgages in all U.S. states except Alaska
and Hawaii. In those states, the limit was increased
to $625,000. Freddie Mac and Fannie Mae can’t
buy mortgages above these limits — but banks and credit
unions pool jumbo mortgages themselves into
mortgage-backed bonds
and sell them to investors.
Dwight
P. Robinson, Senior Vice President, Corporate Relations,
Freddie Mac
Dwight P. Robinson
of Freddie Mac writes about the additional costs of jumbo
& subprime loans.
A jumbo loan costs up to $25,000 more in interest payments over the life of the loan. A subprime loan costs up to $200,000 more. Subprime mortgages are sometimes offered to people who don't qualify for favorable interest rates, often because their credit score is low or because they have irregular incomes.
Dwight
P. Robinson, Senior Vice President, Corporate Relations, 