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Mortgages & Refinancing

Navigating the Mortgage Mess

Expect to pay higher rates for jumbo-size home loans.

Talk about an extreme makeover. Home buyers and owners looking to refinance are finding a mortgage market drastically changed from this past summer, thanks to the onset of a credit crunch sparked by defaults on low-quality loans. Colorado Springs homeowner Tom Jenks refinanced his mortgage in June at his credit union with no trouble. Now, he wonders whether he'll find a bigger loan for a more expensive house he's hoping to buy at a discount from an anxious builder. His credit union is a good bet, as is the small bank on the corner or a branch of a handful of big banks, such as Bank of America, Wachovia and Wells Fargo.

These lenders often fund loans with their own money and keep most of them on the books. Having focused on high-quality borrowers all along, they're not going to get sucker-punched by bad loans. Nor do they have to worry about pawning loans off on Wall Street investors no longer interested in anything mortgage-related.

But Jenks will pay a higher-than-usual premium for a jumbo loan (one over $417,000). By contrast, there's no crunch at all for smaller loans (assuming good credit) because Fannie Mae and Freddie Mac are still buying such loans from lenders. Their rates are following Treasury rates lower and recently averaged 6.3%. You might find a lender more receptive to making a jumbo loan with an adjustable rate. Some lenders are offering rates that stay fixed for five or seven years in the low-6% range.