The government's two top economic guns believe it is only a matter of months before the jumbo mortgage market recovers and begins operating normally again.Federal Reserve Board Chairman Ben Bernanke and Treasury Secretary Henry Paulson told a congressional panel that the jumbo market is under stress but will be functioning normally again in a few months. "The jumbo mortgage market traditionally has been a very profitable part of the mortgage market, with low default rates," Secretary Paulson said. "For that reason, it seems logical that this market will right itself in the weeks and months ahead." Both agreed that allowing Freddie Mac and Fannie Mae to enter the jumbo market temporarily would provide needed liquidity. Freddie chairman and chief executive Richard Syron testified that the difference between the rates on jumbo and conforming mortgages is 92 basis points, and "far exceeds any spike in the past 20 years." Allowing Freddie and Fannie to enter the jumbo market even temporarily "might prevent declines in home prices that could lead to additional defaults," Mr. Syron said. But the Fed and Treasury chiefs contend that Congress needs to pass comprehensive government-sponsored enterprise reforms before the GSE conforming loan limit should be lifted.

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