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Jumbo loans


A non-conforming mortgage loan exceeding the $300,700 limit set by the Federal National Mortgage Association (FNMA or Fannie Mae) and the Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac). As of 2001, the maximum loan amounts accepted by Fannie Mae and Freddie Mac are $275,00 for single-unit homes and $528,700 for four-unit residential properties.

Because jumbo loans are non-conforming, they charge relatively higher interest rates than similar conforming programs. It is not so much that jumbo loans have higher interest rates; it is more the issue that conforming programs have lower rates.

Although Fannie Mae and Freddie Mac are private corporations, wholly owned by their shareholders, they still maintain a close working relationship with the federal government.

This working relationship often implies a sense of government backing in the eyes of many financial investors. Although such government backing is not part of their charters, the implication of such on the guarantees offered by Fannie Mae's and Freddie Mac's lowers the perception of risk.

Lower risk or its perception translates into lower interest rates.

The congressional charter granted to Fannie Mae and Freddie Mac requires them to concentrate on servicing America's low-, moderate- and middle-income home buyers. Therefore, these loan amount limits are used to filter high-income borrowers. Moreover, FHA loans institute lower loan amount limits than do Fannie Mae and Freddie Mac.
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