Stimulus Package effects

 Just when you thought some relief may be on the horizon for that new home you’re thinking about purchasing, due to the adjusted conforming loan limits  of to close to $750,00, you read this.

 This was e-mailed to me from a friend:

Stimulus plan may lead to higher mortgage rates

NEW YORK (Reuters) – A key element of the stimulus package aimed at jump-starting the ailing U.S. housing market may have the unintended consequence of raising mortgage rates, said analysts studying the plan.

A federal proposal to increase the size limit on loans eligible for purchase by mortgage finance giants Fannie Mae and Freddie Mac has unsettled traders in the $4.5 trillion market for bonds backed by the “conforming” mortgages.

Increasing the eligible loans to $729,750 from $417,000 would change the characteristics of mortgage-backed securities, leading traders to exact a premium for increased interest-rate risk.

Borrowers with large, jumbo loans are more likely to refinance since their savings are greater for each incremental drop in rates than for a smaller loan. The loans will taint the bonds since traders don’t initially know the make-up of the securities known as “agency” MBS.

Higher mortgage rates would make it even harder to unload already high housing inventories and existing homes on the market, delaying any housing recovery and potentially extending the U.S. economic slowdown….

*email me for the entire article.

Interesting. We’ll have to see if this holds true. If it does, I’m interested to see how it will effect the different markets in our area (1st time home buyers at about $550,000 vs move up buyers at $750,000-$1,000,000.)


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