Fannie Mae and Freddie Mac Go Jumbo!

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Title Insurance

Last month, President Bush signed into law HR 5140, which is the Economic Stimulus Act of 2008.  Many people are excited about this bill because it will mean that they receive a check from the Government in the amount ranging anywhere from $300-$1200.  The thought behind this bill is that people will take this money and spend it, thus stimulating the economy.  Because of another provision in this bill, the mortgage industry may also see a boost.  The stimulus bill increases the conforming loan limit in high-cost areas.  FHA programs can now purchase and/or guarantee loans in high-cost areas up to 125% of the median home price up to a limit of $729,750.  The previous limit was $417,000.  In areas not designated as high-cost areas, $417,000 will remain the limit.

So what does this mean?

Up until this point, any loan with a balance at or over $417,000 was not eligible to be purchased and/or guaranteed by Fannie Mae or Freddie Mac.  Lenders who are providing these "jumbo loans" rely on these loans being purchased on the secondary market.  Many investors are skeptical and often times do not want to purchase a loan on the secondary market that is not backed by the FHA.  The end result is that the lenders have to carry and maintain these loans on their books.  Its when these loans get purchased that the lenders essentially free up some capital and can fund new mortgage loans.  This stimulus may provide the jumbo market with some liquidity that will keep the market moving.

 

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