Freddie Mac to Buy $10-15 Billion in Jumbo Loans — Move Hopes to Jump-Start Liquidity in Home Loan Market

Some relief may be in store for the battered residential real estate markets in California, New York, and other high cost states, as Freddie Mac announced on Thursday that it will buy jumbo mortgages in areas with high real estate prices from four of the largest U.S. mortgage lenders.

Freddie Mac’s purchase of conforming jumbo mortgages is restricted to 224 high cost markets where median home prices exceed Freddie Mac’s $417,000 loan limit.

Qualified borrowers in these states can now apply for an array of fixed-rate or adjustable rate conforming jumbo mortgages that will be less expensive than non-conforming jumbo loans in high cost markets.

Borrowers can use Freddie Mac conforming jumbo mortgages to finance up to 90% of a property’s value.

Freddie Mac said in a press release that it will purchase conforming jumbo loans from Wells Fargo, JPMorgan Chase, Citigroup, and Washington Mutual. 

It expects to finance between $10 and $15 billion in new jumbo mortgages in 2008.

The press release called the decison Freddie Mac’s “first large-scale effort to jump-start the stalled jumbo mortgage market under the Economic Stimulus Act.” 

The Economic Stimulus Act temporarily raised Freddie Mac’s conforming loan limit from $417,000 to as much as $729,750 through December 31, 2008.

The move is another is a series of federal actions that are meant to increase liquidity in the housing finance market.

Congress tried to ease jumbo loan rates in February, when it allowed Fannie Mae and Freddie Mac to guarantee bigger mortgages of up to almost $730,000 dollars.

But, so far, the banks has failed to respond to these new government guarantees by lowering interest rates or increasing liquidty in the home loan market.

The reason, accoprding to the banks, is that they need to sell their loans to investors, but investors aren’t buying.  Freddie Mac’s move is intended to free up the lenders’ balance sheets and allow them to concentrate their efforts on originating these loans.

“Purchasing conforming jumbo mortgages for our portfolio shows how we can bring new liquidity to markets other investors have all but abandoned and make full use of the new tools Congress gave us to help restore stability during the current housing crisis,” said Freddie Mac Chairman and CEO Richard Syron. “We initially expect conforming jumbo mortgages to have rates that are as much as half a percentage point below the jumbo market rate in many of these high cost markets.”

While specific product availability may vary by lender, Freddie Mac has said it will buy 15-, 20-, 30- and 40-year fixed-rate, fully amortizing conforming jumbo mortgages; 30-year fixed-rate mortgages with 10-year interest-only periods; fully amortizing 5/1 adjustable-rate mortgages (ARMs) and 5/1 ARMs with 10-year interest-only periods. Qualified borrowers can also obtain cash-out refinance conforming jumbo mortgages that provide a maximum cash-out of $100,000.

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