For months, mortgage lenders have been backing away from borrowers with spotty credit, all but closing down the so-called subprime mortgage market.
More surprisingly, they've also been increasingly loath to lend to high-end borrowers who might want to finance a high-cost home.
That means doctors, lawyers, business owners and corporate executives looking for jumbo mortgages - those exceeding $417,000 - are apt to pay significantly higher interest rates than people with similar credit scores in line for smaller loans.
"When the subprime mess came to full fruition, jumbo loans got thrown in with all the subprime loans," said Tom Parker, president of Home Team Mortgage, the in-house mortgage company of Ebby Halliday Realtors in Dallas. "The liquidity not only for subprime loans dried up, but also for jumbo loans."
That is reflected in the divergence of two key interest rates during the past 12 months.
A year ago, a 30-year fixed-rate jumbo came with an average rate of about 7 percent in Dallas, according to Bankrate.com.
That was only slightly higher than the 6.75 percent someone might pay on a smaller mortgage with otherwise comparable terms, known in the industry as a "conforming" loan.
Since then, conforming loans have gotten cheaper, with average interest rates at 5.87 percent recently, and jumbos have gotten more expensive, with interest rates topping 7.5 percent in recent weeks before dropping to 7.19 percent last week.
The difference adds up, and many say higher jumbo costs are contributing to a growing slump in some high-end home markets where sales and selling prices are declining.
If jumbo loans had drifted down to 6 percent, a borrower taking out a $500,000 fixed-rate mortgage for 30 years would pay almost $3,000 a month in principal and interest, which would amount to nearly $1.08 million over the life of the loan.
At a rate of 7.5 percent, the same borrower would shell out almost $500 more each month, an extra $180,000 over the life of the loan.
Those numbers made Clayton Roberts think twice about taking out a 30-year fixed-rate loan when he refinanced his home recently, even though that was the only kind of mortgage he had used in 15 years of homeownership.
Roberts, 48, a Dallas anesthesiologist, wanted to combine two home loans to cut his monthly payment. He took out a loan last year to build a pool and pay for a landscaping project. But with the high interest rates on fixed-rate jumbos, "it just doesn't make sense," he said.
Instead, the doctor ventured into unfamiliar territory, opting for a jumbo loan on which he pays only interest for five years, at a rate of about 6 percent. After that, he will have to pay off the outstanding principal and interest over 25 years, at an interest rate that will be determined later.
Roberts knows that such adjustable-rate mortgages have gotten many borrowers into trouble.
But by reducing his monthly payments during the next five years, he thinks he can apply the savings to reduce the loan's principal by a greater amount.
"I'm going for the ARM to pay down the principal balance," he explained.
Roberts is not the only one following that strategy, despite the risk that interest rates could rise, said Gary Akright, president of Dominion Mortgage Corp. in Dallas.
"One way you can do it is to take an interest-only feature," he said. "Are you subject to rate volatility? Absolutely."
Prime jumbo mortgages are actually less risky than conforming mortgages of the same quality.
In January, about 1.3 percent of prime jumbo mortgages were 60 days or more past due, compared with 2.2 percent of prime conforming mortgages, according to First American CoreLogic Inc.'s LoanPerformance, which tracks mortgage data.
But jumbo delinquencies are rising rapidly. In January 2007, less than 0.6 percent of prime jumbo loans were delinquent by 60 days or more. That means the percentage of troubled jumbo loans has more than doubled in 12 months.
Moreover, lenders feel safer making the smaller conforming loans because they can sell them to government-sponsored entities such as the Federal National Mortgage Association, or Fannie Mae, and the Federal Home Loan Mortgage Corp., Freddie Mac.
But many investors now shy away from mortgage-backed securities, given the recent credit problems.
About $19 billion in private-label securities backed by jumbo mortgages was issued between October and December last year, according to government data. That was less than half the amount issued between July and September.
"There's no appetite on Wall Street to buy those notes anymore," said Mike Anderson, CEO of Reliance Mortgage Co. in Dallas. "I don't care what the quality is."
Brendan M. Case writes for The Dallas Morning News