The End for Jumbo Loans?
Jumbo loans, or those with mortgages backed by the US Government from the current limit of $417,000 up to $729,750, may be cut back, as reported in the Feb 4, 2011 Washington Post. The collapse of Fannie Mae and Freddie Mac, at the heart of the current financial crisis, has sparked a serious review of those systems.
Such a system only made it easier to buy or build a home that is beyond what any one family could possibly require. In fact nearly everything done to make buying a home easier also encouraged people to buy bigger and bigger homes.
With the exception of location, the appraisal of a home became based nearly 100% on size, completely overshadowing quality as part of the analysis. Locations at the limits of development were the only places people could find the homes they dreamed of without considering the great distances they needed to drive each day and the cost of that. Appraisals, of course, couldn’t consider the cost of transportation and time away from family as part of the cost of living at the fringe and buyers ignored it.
When the economy went into recession and foreclosures were everywhere all these weaknesses in the original buying decision were exposed. People were left with large mortgages on cheaply built houses, too far from town.
Nearsighted policies such as the jumbo loans and all the other government programs that encourage larger poor quality homes over small high quality ones should be ended. The benefit to all of us would be more sustainable cities that favor small over large and high quality over the cheap.
