Questions and Answers About the Economic Stimulus Package

With the economic stimulus package being recently passed it has raised many questions by consumers and real estate professionals alike.

Economic Stimulus Package
Questions & Answers

1. What is the legislation, specifically?
The stimulus package temporarily raises the maximum size of mortgages that government-sponsored mortgage companies (Fannie Mae and Freddie Mac) can buy and market as securities from $417,000 to as high as $729,750 in the most expensive markets, and within that range in less expensive markets. By increasing the Freddie and Fannie loan limits, more mortgages will be able to be guaranteed, hence increasing the number of loans available and the number of people able to engage in a housing transaction this year.

2. What are the potential benefits of the economic stimulus package to me as a homebuyer?
Homebuyers needing bigger loans typically have had to apply for jumbo loans that carry a higher interest rate than "conforming loans" and tougher qualification requirements. Raising the conforming loan limit from $417,000 to as high as $729,750 in some market areas will allow more people to buy homes at a lower interest rate. The conforming loan limit will be tied to the market area's median home price, which is set by the Federal Housing Administration.

3. How do I benefit as a home seller?
Home sellers can benefit from a larger pool of buyers who will be able to get bigger loans at lower interest rates. Therefore, a buyer who couldn't afford to buy your home last year may now be able to do so.

4. How do I benefit as a homeowner?
Homeowners with non-conforming or jumbo loans also could benefit because they could refinance a large existing mortgage into a new conforming loan that carries a lower interest rate. Nearly 500,000 people with higher priced jumbo loans will be able to refinance to conforming loans under the provisions of the bill, saving these homeowners $274 to $411 a month, according to estimates by the National Association of Realtors® (NAR).

5. Will this help me if I have issues with my credit?
The increased loan limits for the Federal Housing Administration (FHA) program will afford people with possible credit issues an opportunity to qualify for a conventional loan. NAR estimates that increasing FHA loan limits will help an additional 138,000 Americans achieve homeownership and will allow nearly 200,000 homeowners to refinance and potentially keep their home.

6. Will this help me if I am at risk of foreclosure?
It could help some homeowners who couldn't refinance under the conforming loan limit of $417,000, unless their credit is already impaired. An economic impact study conducted by NAR earlier this month estimated that this increase in conforming loan limits would help prevent as many as 210,000 foreclosures. On Feb. 12, U.S. Treasury Secretary Henry Paulson announced steps to help borrowers in danger of foreclosure stay in their homes by offering a 30-day freeze on some foreclosures while loan modifications are considered. Several major banks have agreed to participate.

7. Could this affect home prices?
Home prices could be strengthened by two to three percentage points, NAR reports. And more than 300,000 additional home sales could be generated nationally and housing inventory would be reduced.

8. When will I know the exact conforming loan limits for my area?
The U.S. Department of Housing and Urban Development is planning to announce the conforming loan limits for different parts of the country in early March. In the meantime, lenders are expected to approve some loans in anticipation of what the new limits might be.

9. For what period of time will this legislation be in effect, and why is it temporary?
According to the legislation, eligible loans must be made between July 1, 2007, and Dec. 31, 2008, when the conforming loan limits would revert to existing levels, unless Congress extends the cutoff date. This legislation is for a temporary period of time as a means to stimulate the economy as much as possible, creating in effect a strong call to action. Combined with existing low mortgage rates, this is clearly the time to act.

You can view the entire explenation of the package on my website http://scottcooney.net