President Bush today signed into law a $152 billion economic stimulus bill that will temporarily allow Fannie Mae, Freddie Mac, and the Federal Housing Administration to guarantee mortgages as large as $729,750 in some high-cost markets.
HR 5140, the Economic Stimulus Act of 2008, raises the conforming loan limit for mortgages eligible for purchase or guarantee by Fannie and Freddie to 125 percent of the median home price in high-cost areas, not to exceed $729,750. In areas not designated as high-cost markets, the conforming loan limit will remain $417,000.
The stimulus bill also increases the upper limit for FHA loan guarantee programs in high-cost markets — currently $372,790 — to 125 percent of the median home price, with an upper limit of $729,750. The upper limit for FHA-backed mortgages in “normal” housing markets will be increased from $200,160 to $271,050.
The stimulus bill gives the Secretary of Housing and Urban Development 30 days to publish area median prices and loan limits. But federal regulators have said it will take longer for Fannie and Freddie to draft new credit guidelines and update their systems to evaluate what are now considered “jumbo” loans.
The task is complicated by the fact that the new loan limits for high-cost areas will vary according to the median home price in a given county or metropolitan statistical area (MSA).
A recent analysis by Stanford Group Co. that employed median-home-price data from the National Association of Realtors identified 19 markets, more than a third in California, where Fannie and Freddie might soon enter the “jumbo light” market (see Inman News story).
The new limits are set to expire on Dec. 31, but could be extended beyond that by other bills that would further expand FHA loan programs and increase oversight of Fannie Mae and Freddie Mac.
After signing the bill, President Bush urged Congress to act quickly on those bills, and to pass legislation that would allow state housing agencies to issue tax-free bonds to help homeowners refinance their mortgages.
The stimulus bill will allow Fannie and Freddie to buy and securitize jumbo loans originated any time between July 1, 2007 and Dec. 31, 2008, which could allow jumbo lenders to get some of the loans they’ve made in the last seven months off their books and free up capital to make more loans.
Allowing Fannie, Freddie and FHA to venture into what is now considered jumbo loan territory could bring down rates on those loans, which have been running about 1 percent higher than those for conventional, conforming loans.
Investors who buy mortgages in the secondary market have become wary of loans that aren’t guaranteed by Fannie, Freddie or FHA, reducing the supply of money available to make such loans and pushing up rates.