Bad news for jumbo mortgage loans
By Holden Lewis • Bankrate.com

Buyers of pricey houses are finding that money has suddenly become more expensive to borrow. Ditto for loan applicants who don't want to prove that they told the truth about their incomes.

Rates on jumbo and Alt-A mortgages have zoomed upward since the last week of July, even as rates on conforming, fixed-rate mortgages slipped downward.

The development is bad news for people who want to borrow more than $417,000 to buy a house or refinance a loan, or who can't or don't want to document their income. Rising jumbo rates make it more difficult to sell a house costing half a million dollars or more.

Conforming mortgages are home loans that meet guidelines set by Fannie Mae and Freddie Mac. Among other things, those guidelines set a maximum loan size, called the conforming limit, which changes annually. In 2007, the conforming limit is $417,000. A jumbo mortgage is a loan for more than the conforming limit.

The conforming guidelines also call for borrowers to document their income, or at least to be prepared to do so. Stated-income loans, in which the borrower doesn't document his or her declared income, fall into a mortgage category called Alt-A. Other types of loans, such as option adjustable rate mortgages, or ARMs, are considered Alt-A, too.

A loan can fit into both categories -- to be both a jumbo and an Alt-A. It's a common combination in Southern California, where prices are high and option ARMs are popular.

In Bankrate's weekly rate surveys, the average 30-year fixed jumbo rose about a third of a percentage point in two weeks, to 7.35 percent on August 8. Meanwhile, the average 30-year fixed conforming loan fell almost a tenth of a percentage point, to 6.66 percent.

Climbing jumbo effect

Jumbo rates climbed quickly. Late last week, Wells Fargo raised the rate on its jumbo 30-year fixed by more than a percentage point -- snap, just like that. Other lenders didn't hike so dramatically, but rates did rise, both for fixed-rate and the more popular adjustable-rate jumbo mortgages.