Friday, January 25, 2008

Help for mortgage market included in stimulus plan!

Big News from of Washington
Fannie Mae and Freddie loan limit $729,750 for a limited time
FHA loans increased from $362,000 to $729,750.

By Susan Diesenhouse
January 25, 2008

To jump-start slow housing sales, the economic stimulus package proposed in
Washington on Thursday aims to get more money circulating in the nation's
mortgage markets.

One component is an increase in the maximum loan amount allowable by two government-sponsored entities, which will make it more affordable to buy or refinance a more expensive house.

The cap on loans sold through the secondary market to Fannie Mae and Freddie Mac will be raised from $417,000 to as high as $729,750 for a limited time, according to the office of House Speaker Nancy Pelosi (D-Calif.), who helped
negotiate the deal.

The benefit is that lenders will be willing to originate more mortgages because they will be able to sell a greater proportion of them on the secondary market.

It also will be cheaper for buyers to get a larger loan, a big benefit in high-priced areas like California and New York. Currently, anyone who wants to borrow more than $417,000 has to use what is known as a jumbo loan, which comes with a higher interest rate.

Separately, the stimulus package will raise the size limit on loans insured by the Federal Housing Administration, a government agency, from
$362,000 to $729,750.
FHA-backed loans will allow more buyers with
smaller down payments to get into the housing market.
All of these provisions "should inject more liquidity into the mortgage markets," said Chris Lafakis, an associate economist at Moody's "If loan originators
know that they can sell more mortgages to Fannie and Freddie, they'll be willing
to originate more loans."

"This will make more capital available to buyers," agreed Dennis McGill, research director for Zelman & Associates, a New York housing research firm.

Increasing the number of FHA-backed loans available could allow as many as 10 percent more buyers to enter the housing market, according to a Zelman analysis.

The stimulus package still requires congressional and White House approval.

Then, it will take three to six months for it to go into effect, said Doug Duncan, chief
economist for the Mortgage Bankers Association.

For Chicago and Illinois, "it will help the housing market by providing another source of mortgage funding for condominium units and single-family houses," Duncan

But just how much it will boost the residential market here is debatable.

Lowering down payments for buyers who can secure an FHA-backed mortgage will be helpful, said Alan Lev, the president of the Home Builders Association of Greater Chicago.

But the effect of raising the size of government-guaranteed mortgages or mortgage-backed securities purchased by federally insured entities is less clear, said Lev, who is also president of the development firm Belgravia Group Ltd., which has a mortgage lending unit.

"It's not the magic answer," he added. People purchasing high-priced houses or condominiums "aren't that sensitive to price."

What is roiling the housing market here "is the doom and gloom, the falling stock market, the news of builders in trouble," he said. "It's about consumer confidence."

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