All new homes looked so wonderful at the time.

Jumbo loans--those exceeding Fannie Mae/Freddie Mac's limit of $417,000 (higher in high-priced markets)--are facing trouble of their own. They can't be sold off in a secondary market, because there's no market to sell to.

So if you're Bank of America or any of the other (very few) lenders offering jumbo loans, you have to keep these loans in your portfolio. You can't sell them to hedge funds or to China or Ginne Mae or wherever. There's about $1 trillion of jumbo loans out there, according to an article in Inman News, a leading online real estate news source.

It's a good thing that borrowers of these loans tend to be very creditworthy. They have high incomes and pay their bills, which is why they got the loans in the first place. Because of that, the default rate is lower than for other loans.

The default RATE is lower, but the loans, when they do go into default, cause a huge hit. Just a few failures in the jumbo category could exceed, in dollar amounts, loan failures in a conventional portfolio, even though the percentage rate is higher. One failed $1 million loan is as bad as ten failed $100,000 loans.

Nowadays, many of these jumbo borrowers are experiencing difficulty. They lose their jobs, too, and it's every bit as devastating to their familes. Worse, they aren't eligible for the loan modifications or refinance packages offered to smaller borrowers. And if the Portland Metro market is any indicator, short sales to avoid foreclosure are problematic.  If a $1.2 million home is being short sold for $1 million, or even $900,000, there are few buyers out there and very little financing.

And no federal tax credit and cheap and easy FHA money, I hasten to add.

And the situation may be worse still. A spokesman for Sorrento Capital in Irvine, CA, suspects many of the jumbo borrowers of the last few years, having lost their jobs, are making their payments with HELOC (Home Equity Line of Credit) proceeds.

Stay tuned on this one.