Congress has just passed their economic stimulus plan that is supposed to put money in everyone's pocket so they can go out and boost the economy. This is the highlight of the plan, but it also covers another important provision that will be good news for homeowners and potential homebuyers.
The conforming loan limit that is insured by Fannie Mae and Freddie Mac is $417,000. Fannie and Freddie are the government companies that buy and package mortgage backed securities from banks. Any loan amount over $417,000 is considered a jumbo loan and is not insured by these entities. Ever since the subprime fallout, these jumbo loans have become expensive and average about 1.25 percentage points higher than conforming loans. Wall Street is very reluctant to purchase these securities since Fannie Mae or Freddie Mac does not back them.
The stimulus plan will instate a temporary increase in conforming loan limits to about $729,750, depending on your location. This means that these higher balance loans can now enjoy the same low rates as conforming loan amounts. But this increase will only last till the end of 2008, so interested parties must act quickly.
In my opinion, this is the best part of the stimulus package. It will allow struggling homeowners to save from $200 - $400 every month by refinancing their high balance loans. Let's hope that Congress considers making this increase in the conforming loan amount a permanent fixture.
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