Jumbo’s will come down. First I believe you’ll see Fed Funds rates sub 3% in the next 60 days. Someone will figure out how to create a model for different areas to determine the risk/reward ratio, the likelihood for future property declines, and get a big institution to guarantee it.

If I was Warren Buffet, I’d be setting up direct lending banks in California, New York/NJ and maybe Mass. I’d only offer Jumbo’s to owner/occupied individuals with FICO’s over 700, 20% equity (with appraised values from appraisers that work for me), and documented assets of at least 10% of the home’s value in cash. No brokers. He could get his Geico guys to run the operation. I’d service the loans for a year and then collateralize them. Do you think there would be any buyers for Buffet CDO’s yielding double what T-Bills are selling for? He’d be printing money.