Jumbo mortgages are home loans at amounts higher than the prevailing “conforming loan<\/a>” limit. Borrowers generally pay a mortgage interest-rate premium for a jumbo loan vs. a conventional loan, which is intended to compensate lenders for the larger loss they’ll suffer on a property if the homeowner defaults on the mortgage.<\/p>\n The setting of the nationwide conforming-loan limit falls to U.S. government-supported companies Fannie Mae<\/a> and Freddie Mac<\/a>, which purchase packages of conforming mortgages from banks and other lenders and resell them to investors. Insurers and investment banks step in to buy up portfolios of jumbo mortgages.<\/p>\n The difference, or spread, between conventional and jumbo loan mortgage rates is a function of the relative risk of each loan type at any given moment. Historically, the mortgage interest rate spread between the two typically runs about one quarter to one half of a percentage point. In times of heightened concern about the real estate market, such as now, the spread can be 1% or more.<\/p>\n Before this year, any mortgage over $417,000 dollars was considered a jumbo loan. Jumbo loans accounted for one in seven mortgages in the U.S. in 2007. That number is down this year because lenders are saddled with disposing of millions of foreclosed properties and are reluctant to make riskier loans that don’t fall within Fannie Mae and Freddy Mac’s guidelines.<\/p>\n