Jumbo Mortgages Get More Affordable

If you're in the market for an expensive home, you might be in luck.

A government initiative to make "jumbo" mortgages more affordable is starting to bear fruit, with interest rates turning downward. But lending standards have gotten much tighter, meaning that those with less-than-stellar credit are not likely to get loan approvals for a dream home on the shore.

Earlier this year, Congress approved a temporary raise in limits for government-backed loans from $417,000 to $729,750 in the most expensive U.S. markets. That initiative was meant to open up the markets for such property by driving interest rates lower for borrowers and encouraging risk-averse investors to buy those loans. Such jumbo loans generally have higher interest rates than smaller mortgages, called "conforming" loans.

As a result, Freddie Mac(FRE - Cramer's Take - Stockpickr) and Fannie Mae(FNM - Cramer's Take - Stockpickr) have started buying up billions worth of jumbo loans from troubled mortgage lenders like Wells Fargo(WFC - Cramer's Take - Stockpickr), Chase(JPM - Cramer's Take - Stockpickr), Citigroup(C - Cramer's Take - Stockpickr), IndyMac(IMB - Cramer's Take - Stockpickr) and Washington Mutual(WM - Cramer's Take - Stockpickr). The first signs of improvement have come, with some lenders slashing jumbo-loan rates to levels much closer to conforming-loan rates.

For instance, the difference between conforming and jumbo rates at IndyMac dropped to 0.125 percentage point yesterday from 0.5 point a week earlier.

Lower jumbo-loan rates can add up to significant savings for those buying in pricey markets such as New York City, Boston, Washington, D.C., and many areas in California. For instance, the monthly payment on a $600,000 30-year mortgage with a 6.25% interest rate would be $3,694.30, according to BankingMyWay.com's mortgage calculator. Dropping that rate by half a percentage point would save $192.86 per month, or more than $69,000 over the life of the loan.