While most of the attention during the housing slump has been directed at subprime mortgages given to those with weak credit histories, some high-cost regions have a different problem. There are prime borrowers with excellent credit who’ve used subprime-style gimmicks in combination with jumbo loans to overpay for their homes. The investors who had fueled the real estate boom earlier in the decade were spooked by cascading losses from the junk mortgages they owned. Since then, the investors have refused to buy securities that aren’t based on the most conservative borrowing standards, even loans to borrowers with excellent credit. If the jumbo-mortgage segment doesn’t bounce back, home sales will slow even more than they have and prices could continue to fall. A well-functioning jumbo market is essential if the housing market is to stabilize and eventually head up again.

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