Big loans -- those for more than $417,000 -- are still hard and costly to get.

Congress thought it had solved at least some of the problem earlier this year when it allowed the two, big government-chartered mortgage companies to buy bigger loans.

But, no.

"We just haven't seen it yet," says Debi Zentner, a mortgage broker with Diversified Capital Funding in Pleasanton, Calif., who had hoped the higher limits would make more money available at lower interest rates.

Mortgages that big are called jumbo loans, because they are too large to be purchased, packaged and sold to investors by Fannie Mae (the Federal National Mortgage Association) and Freddie Mac (the Federal Home Loan Mortgage Corp.).

Since the mortgage crisis struck last year, investors have been reluctant to fund home loans that couldn't meet Fannie Mae and Freddie Mac's standards for creditworthiness.

That has made it much more difficult to get that kind of financing and has driven up the cost of those loans offered by the few banks and mortgage companies still willing to make them.

Before the mortgage crisis, jumbo loans cost about one-half point more than mortgages for less than $417,000 and conformed to Fannie Mae and Freddie Mac's standards.

Now, jumbo loans are more than a point more expensive, averaging well above 7% in our most recent surveys of major lenders.

When Congress raised the loan limit for Fannie Mae and Freddie Mac in 224 high-cost counties to as much as $729,750, it expected more consumers would be able to qualify for cheaper loans.

That hasn't been the case, because few banks are willing to make loans for more than $417,000, even if they meet Fannie Mae and Freddie Mac's standards.

The few that do (some are calling them "agency jumbo loans") require much larger down payments and have been charging higher interest rates than for loans of less than $417,000, according to Daniel Shlufman, president of FCMC Mortgage Corp. in Clifton, N.J.

Shlufman and Zentner say mortgages within the new loan limits have cost somewhere between one-half and one point more than traditional conforming loans, which averaged 6.0% to 6.1% over the last few months.

Borrowers must have enough cash for a 10% down payment (or have 10% equity in their homes if they want to refinance). If they're in a distressed market where home prices are falling, they should expect to have at least 15%.

In early May, Rep. Barney Frank, the Massachusetts Democrat who is the influential chairman of the House Financial Services Committee, said he would hold hearings to find out why the increased limits haven't given borrowers "more bang for the buck."

Fannie Mae responded the next day by announcing it didn't expect banks to charge more for agency jumbo loans than conforming mortgages.

Reassured that Fannie Mae was willing to buy those larger loans even if they didn't carry a higher interest rate, some banks reduced their price by half a percentage point, to about 6.125%.

Our extensive database of the best mortgage rates shows many lenders now offering loans in that price range for 6% or so, with fees of $1,000 or less.

"It remains to be seen whether it will have a meaningful impact," says Julian Hebron, vice president with RPM Mortgage in San Rafael, Calif., because high down payments are still part of the deal.

Lenders are unlikely to accept less because so many applicants live in areas where home prices are falling the most, such as California.

"No one has confidence in collateral ... with values all over the place," says Andre Mitchell, executive vice president of Lynx Mortgage Bank in Westbury, N.Y.

That means the market for high-price homes won't improve until prices stabilize and those loans become more readily available.

There are "no potential buyers, limited and high priced financing, and lots of empty houses," says Katherine Doremus, a mortgage banker with Community Bank in Wheaton, Ill., a suburb of Chicago.

"There are a lot of large, expensive homes on the market not going anywhere."

By Regan Doherty

Interest.com Associate Editor

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