A jumbo problem

Recently, the government raised the ceiling on the loans that can be purchased by Fannie Mae and Freddie Mac in an effort to help homeowners in pricy coastal zones. "Jumbo" loans, above the old ceiling of $417,000, carried a stiffer interest rate; the government hoped to ease the burden on those homeowners, and perhaps give a boost to the housing market.

Apparently, though, this hasn't worked quite as planned:

Many homeowners and mortgage brokers anticipated that the higher limit would lower rates on bigger loans to match the conforming rates. Instead, it has created a middle tier of rates for loans between the old $417,000 limit and the new $729,750 limit. Investors are demanding higher yields for those loans because mortgage investments have imploded and investors fear the larger loans will make bundles of conforming loans riskier.

"Borrowers and Realtors say rates should be as low as possible - end of story," said Tom Kelly, spokesman for Chase home lending, which started offering mid-tier loans in mid-March. "But other people have to sort through the realities. We just don't know enough about how the market will work, exactly."

This middle tier of loans has come to be called "agency jumbos" because the agencies of Fannie and Freddie can buy them. But Keith Gumbinger, an analyst for HSH Associates in Pompton Plains, N.J., sometimes calls them "tweeners."

Mortgage brokers and borrowers, however, are more likely to call them a disappointment.