One of the reasons that First Federal Bank failed was the abundance of low-interest jumbo loans they had outstanding. Jumbo loans or mortgages are riskier for banks to make.
But what are jumbo loans, and why are they risky? They may have been popular with the recently failed banks, but are they still common with other banks?
Jumbo Loans Explained
There are two types of home loans: a conventional conforming loan and a jumbo loan. According to the Federal Housing Finance Agency, in most counties, the maximum amount for a conforming loan in 2023 is $726,200. Any loan over that amount is considered a jumbo loan. The current jumbo loan amount was increased from 2022’s $647,2000 limit. But the limit varies by county….