I have read that the mortgage institutions Fannie Mae and Freddie Mac guarantee loan up to $417,000, so loans past that amount are deemed jumbo loans. The interest rates on these loans have risen dramatically affecting especially areas such as New York City. This issue has jumped interest rates for higher income households with good credit scores.

These factors create a recipe for recession since generally people who can't borrow don't buy or remodel and will even foreclose. A lot of foreclosures entering the market then depresses housing prices further exacerbating the situation.

I am not sure that there is any solution outside of federal interventions -- other than moving into teepees made from old clothing in someplace like Death Valley.

I actually think that the most likely forms of federal intervention will only serve to prolong the problem. Bailouts to borrowers won't solve the problem of people living in homes that they couldn't really afford, and bailouts to banks will only reward behavior that needs to not be encouraged. I think things are at the point where we really need to see some sort of shakeout to get back to a sustainable level.
The conforming loans that you mentioned (the under 417k, FANNIE MAEs are one the two areas of loans that are doing well. Rates on those have actually dropped since this whole mess started as the perception is that these are much safer then the others.
Another problem that the jumbo loans are currently having is the way they are bundled for resale. They have been mixing income verified loans with non-income verified loans when they are re-sold. Investors don't really know what they are getting. The rates on the income check jumbos will start to come down when they change the way the loans are bundled for resale. I have no idea where the stated income and no doc jumbos will end up.
I definitely agree that this mess will cause major downward pressure on home prices, particularly the over 500k segment of the market. The next 12-24 months will probably be a bloodbath for borrower's, but next year will be a great time to buy if you aren't currently a home owner. For the people that are in fixed rates that they can afford, I say just ride it out, as things will definitely stabilize eventually after things settle down.
I'm actually working with a borrower right now that had a loan disappear out from under them. They are a decent credit score, but what was originally going to be a no doc loan for under 7% has turned into a struggle to document every penny they earn so we can qualify for an expanded ratio income check loan.
And subprime has virtually disappeared. The only places still doing those are only doing fixed rates, and those are all above 10% interest if you have a below 600 credit score.
Things are going to over correct for a while. If you have any plans to buy a home or refi any time soon, be very aware of what's on your credit report, and take steps well in advance to position yourself as well as possible. The days of throwing money at anyone with a pulse are definitely gone.

AP

does this mean i'll be able to buy a cheap apartment next year? :-)

Where you live...? I doubt it. ;)

"With all my faith
And all my heart
And all those simple things you are"

I think Well, you have a poor history, so you are a geaetrr risk. If your credit score is low anyway, consider negotiating to get the loans paid off at a lower rate. One way to do this is to stop paying the loans, but save as much money as you can. Then, have cash ready to negotiate a deal, say for 60% of what you owe, with the most aggressive creditor. There are companies that will do this for you, but they charge large fees.Another thing I'd suggest is take a look at this non-profit site:Although they are an approved bankruptcy education organization, you do not have to be bankrupt to use their FREE services. Start by using their first survey, with an anonymous name. Then, a report will give you ALL of your alternatives, with the pros and cons of each alternative.Borrowing money to pay off these loans will only prolong the problem. I would think it would be better to solve the problem now. You can get a forced consolidation loan from consumer credit counseling service, but the creditors will not waive interest and this non-profit organization is sponsered BY credit card companies and credit reporting agencies.

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