In the United States, a jumbo mortgage is a mortgage loan in an amount above conventional conforming loan limits. This standard is set by the two government-sponsored enterprises Fannie Mae and Freddie Mac, and sets the limit on the maximum value of any individual mortgage they will purchase from a lender. Fannie Mae (FNMA) and Freddie Mac (FHLMC) are large agencies that purchase the bulk of U.S. residential mortgages from banks and other lenders, allowing them to free up liquidity to lend more mortgages. When FNMA and FHLMC limits don’t cover the full loan amount, the loan is referred to as a “jumbo mortgage”. The average interest rates on jumbo mortgages are typically higher than for conforming mortgages.
On February 13, 2008 President George W. Bush signed the Housing and Economic Recovery Act of 2008 (Pub.L. 110-289, 122 Stat. 2654, enacted July 30, 2008) which temporarily increased the jumbo conforming limit in the United States. The limit was raised to $729,750 or 125% of the median home value within the metropolitan statistical area, whichever is the lesser. Initially due to expire in December 2008, the new limits were extended through 2010. Mortgage lenders did not freely adopt these new limits, making them essentially “theoretical,” as mortgages above the old conforming limit of $417,000 still attracted higher interest rates.
As of 2010, the limit on a conforming loan in “general” areas was $417,000 for most of the US, apart from Alaska, Hawaii, Guam, and the U.S. Virgin Islands, where the limit was $625,500. The limit in “high cost” areas was $729,750 and $938,250, respectively.
On October 1, 2011 the jumbo conforming limit of $729,750 in “high cost” areas was reduced to $625,500.