Fucillo Family Weblog

 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.)

Quite a few people have asked me recently about the Economic Stimulus Package bouncing around Capitol Hill. The most important aspect of the package being “how will it effect the housing market, and more importantly, my ability to buy a home”. 

The answer is a little gray right now, but it could be very important. Both the House and the Senate agree that we need to raise the limits on the maximum size mortgages our government will insure (FannieMae & FredieMac).

Why is this a big deal? Because in California and more specifically the Silicon Valley the average price of a home is well over $500,000 (closer to $750,000 in some areas).  Quite a bit more than the $417,000 than our government will currently buy.

Under the  proposed stimulus plan, the maximum mortgages for  the government programs will jump to 125 percent of a local area’s median house price-with a top limit just under $730,000.

That’s huge. How will this play out? Will it help the current housing market? We’ll just have to wait and see.