They can’t sell Jumbos to Government Sponsered Enterprises (GSEs – Federal National Mortgage Association – FNMA – Fannie Mae and Federal Home Loan and Mortgage Corporation (Freddie Mac)). With no demand in secondary market for these loan, all mortagage issuers will quickly run out of funds. Mortgage issuers act as circulating pumps converting mortgages to investment securities. Since there are no buyers for these securities (due to fear of defaults/devaluation due to home price deflation), there are no Jumbo loans.
You are just seeing almost all market for $500K and above properties go up in a flash. This is going to be a bigger deal than subprimes. Now, all homes except the multimillion $ wealthiest estates are valued @ about $500K due to the magic of mortgage availability.
