Earlier this year, we learned that the Jumbo mortgage was going to be a bit bigger for a time. For a year, the limit for mortgages purchasable by Fannie Mae and Freddie Mac was temporarily increased from $417,000 to as high as $729,750 through the beginning of 2009 as a component of the Economic Stimulus Act of 2008. That date is now fast approaching.

The original purpose of this temporary change was to address a mortgage market problem that arose in late 2007 and early 2008, specifically that demand for securities backed by Jumbo mortgages had decreased precipitously. By opening those loans to Government-Sponsored Agency purchase, the government’s hope was that it would be able to maintain property turnover. For the most part this was a success.

Supplementing the Stimulus Act limit increases, the Housing and Economic Recovery Act passed in August provides for extended loan limit increases in certain markets where home prices are significantly higher than the national average. In these markets, limits will be increased as high as $625,500 for purchase by GSAs and FHA insurance. This will continue through the end of 2009, and can potentially be extended beyond.

We’ve also seen recent releases of information regarding the 2009 limits for Fannie and Freddie loans, and FHA information has been coming out, so let’s take a moment to recap the new limits for single-family homes.

                                         2008                2009

Maximum GSA                    $729,750          $625,500

Maximum FHA                    $729,750          $625,500

Local Limits

Rhode Island (all)               $475,000          $426,650

Massachusetts FHA

        Greater Boston            $523,750           $465,750

        (includes Essex, Middlesex, Norfolk, Plymouth and Suffolk counties)

        Worcester                   $385,000           $285,200

        Bristol                        $475,000           $426,650

Massachusetts GSA

        Greater Boston            $523,750           $465,750

        Worcester                   $417,000           $417,000

        Bristol                         $475,000           $426,650

Connecticut FHA

        Fairfield                      $708,750           $511,750

        Hartford                      $440,000           $320,850

        Windham                    $272,500           $271,400

Connecticut GSA

        Fairfield                      $708,750            $511,750

        Hartford                      $440,000            $417,000

        Windham                    $417,000            $417,000

What does this mean for the mortgage and real estate markets? At this point, a majority of our lenders have cut off new registrations of higher balance loans for many areas, getting an early start on the new loan limits. For the most part, I don’t anticipate a major impact will result from this. In spite of the lower loan limits available in our market area, home prices are also significantly lower, and even homes that require rehabilitation under a FHA 203(k) mortgage should be able to be served.

There are two areas I anticipate will be hardest hit on the FHA originations side, specifically Greater Hartford, Connecticut, and Worcester County, Massachusetts. These areas had a very large decrease in their FHA mortgage limits, and, as a result, I think there is a possibility that sales of properties will be impacted by the change in limit. Specifically, I can think of at least one client who is considering some properties in Worcester County, who probably will be affected.

If you have questions about your pre-approval, please double check with your Mortgage Advisor as to any changes in your approval status. If you aren’t working with a Mortgage Advisor, I would appreciate the opportunity to assist you.

Dan Hartman

Senior Mortgage Advisor, MBA

Province Mortgage Associates

www.provincemai.com

(401) 263-8655