Fannie, Freddie to buy bigger loans

Move means lower rates on many mortgages up to $729,750

Fannie Mae and Freddie Mac are once again set to begin buying "super-conforming" mortgage loans of up to $729,750, which should bring rates down for borrowers with good credit seeking loans previously classified as jumbo.

Currently, loans greater than the $417,000 conforming limit in "normal" housing markets — or the super-conforming limit of up to $625,500 in high-cost markets — are considered jumbo loans.

Jumbo loans carry higher rates than conforming loans because they aren’t eligible for purchase or guarantee by Fannie Mae and Freddie Mac. Rates on jumbo loans are running at least 1 percent to 1.5 percent higher than conforming loans of less than $417,000.

In between conforming and jumbo loans are so-called super-conforming loans that exceed the $417,000 conforming loan limit, but are still eligible for purchase or guarantee by Fannie and Freddie.

Super-conforming loans carry slightly higher interest rates than conforming loans — about 25 to 30 basis points — but are less costly than jumbo loans that Fannie and Freddie can’t buy or guarantee. A basis point is one hundredth of a percent.

On Jan. 1, the upper limit for super-conforming loans was rolled back from $729,750 to $625,500. But the economic stimulus bill signed into law Feb. 17 restored the higher limit for single-family homes in high-cost markets that was in place for much of 2008.

The following week, the Federal Housing Finance Agency published lookup tables for the new Fannie and Freddie limits in high-cost markets — 250 counties nationwide.

But Fannie Mae did not issue its eligibility requirements for the new limits until March 30. Freddie Mac published its guidelines on April 16. Both companies will begin buying super conforming loans of up to $729,750 from lenders on May 4.

Wells Fargo will begin making super-conforming loans of up to $729,750 in high-cost markets on Monday, and Bank of America will start in mid-May, the San Francisco Chronicle reported.

Implementation of the new policy should mean lower rates for some borrowers seeking loans that were previously classified as jumbo, but which now qualify for purchase by Fannie and Freddie as super-conforming loans. …CONTINUED


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