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

The rates for most jumbo loans have been above 7% for almost the entire past year, and there's no relief in sight.

Meanwhile, rates for newly created "conforming jumbo loans" -- up to $729,750 in the most costly housing markets such as San Francisco and New York City -- have decreased since early May, falling to well below 7%.

(You can see exactly how much every type of jumbo loans cost in your area by searching our extensive database of the best mortgage rates.)

But lenders are still insisting on down payments of at least 10% to 20%. That's money -- or equity, in the case of refinancings -- that most borrowers don't have.

"There are borrowers who could desperately use financing, but just can't make those hurdles," says Keith Gumbinger, vice president of the mortgage research firm HSH Associates in Pompton Plains, N.J. "Putting a shining jewel at the end of 20 hurdles is great, but if you can't make it past the hurdles, it doesn't do very much good."

Mortgages for more than $417,000 are called jumbo loans because they have been too large to be purchased, packaged and sold to investors by the two, big, government-chartered mortgage companies.

Since the mortgage crisis struck in late 2006, investors have been reluctant to buy loans that don't conform to Fannie Mae (the Federal National Mortgage Association) and Freddie Mac's (the Federal Home Loan Mortgage Corp.) standards for creditworthiness.

As jumbo mortgages became more difficult and expensive to obtain, the sales of houses and condos priced between $500,000 and $1 million plunged even more than the sales of lower-cost homes.

In many parts of the country, that only affected luxury housing. But jumbo loans were a huge problem in places like California, where the median home price was $488,000 in 2007.

Before the mortgage crisis, jumbo loans used to cost about a half-point more than smaller, conforming loans that could be sold to Fannie Mae and Freddie Mac.

Now they cost a point or so more, averaging 7.60% in our most recent survey of major lenders taken June 18.

Congress thought it had solved at least some of the problem earlier this year when it allowed Fannie Mae and Freddie Mac to buy bigger loans.

In February, it raised the loan limit for the two agencies in 224 high-cost counties to as much as $729,750, expecting that more consumers would be able to qualify for the cheaper conforming jumbo loans.

But lenders worried that Fannie Mae and Freddie Mac would expect those mortgages to carry higher interest rates and impose stricter terms than regular conforming loans for less than $417,000.

Only a few decided to offer the loans, and those that did charged a half- to three-quarters of a percentage point more than for regular conforming loans. They also demanded lower debt-to-income ratios and high down payments.

As a result, very few conforming jumbo loans were made. They accounted for only one-quarter of 1% of the mortgage debt that Freddie Mac bought in April and May.

In early May, U.S. 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 that banks did not have to charge more for conforming jumbo loans.

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 to only about a tenth-of-a-point more than they were charging for regular conforming loans.

But the high down payments and other stricter terms remain, so most borrowers still can't qualify for jumbo conforming loans or take advantage of the new, lower rates.

For a conforming jumbo loan, the two government-chartered lenders require at least 10% down and a credit score of 660.

For loans under $417,000, Fannie Mae will accept as little as 3% down and a credit scores as low as 580. Freddie Mac wants a little more down, at least 5%, but has no minimum credit score.

As a result, they'll probably finance half as many jumbo loans as the National Association of Realtors had originally expected them to this year. Maybe fewer.

For that to change, Gumbinger says, "some liberalization of those requirements would have to happen."

Jackie Davidson, a broker with Pacific Mortgage Consultants in Glendale, Calif., works with borrowers every day. She says they don't have hundreds of thousands of dollars for down payments or enough equity in their homes to refinance out of unaffordable, adjustable-rate loans.

Conforming jumbo loans, and all of Washington's other solutions to the mortgage crisis, have only created an illusion that something is being done.

"What they really have to do is ask what's going to help the person on the street," Davidson says.

By Regan Doherty

Interest.com Associate Editor

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