Update: Higher loan limits for Freddie and Fannie

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Get ready for the new Jumbo loan cutoff: call it the Jumbo Jumbo: $625K and above.

News item from LATimes.com: ‘The [stimulus] package also includes a provision to make refinancing mortgages easier by raising the limit to $625,500 for most government-backed housing loans. That is expected to make more funds available to homeowners in expensive real estate markets such as Southern California who want to get out of their adjustable rate mortgages.’

That’s pretty big news, a shot in the arm to California real estate, and to lenders like Countrywide looking to unload jumbo loans. It means lower interest rates for jumbos, among other things. It’s also a tribute to the accuracy of commenters on this blog, who were chattering about rumors to this effect earlier in the week -- even though those rumors were not widely covered by the mainstream press. Good on you, you unwashed bloggers.

More, from L.A. Times: ‘Currently, the government’s mortgage guarantors, Fannie Mae and Freddie Mac, can purchase mortgages only up to $417,000, and funds have largely dried up for homeowners who want to refinance mortgages above that limit. The legislation would temporarily raise that limit to $625,500, making it easier for banks to make loans to homeowners who owe more than $417,000 on their mortgage. It would also raise the limit on loans insured by the Federal Housing Administration to $729,000.’

The Washington Post: ‘The package would temporarily increase the size of jumbo mortgages that can be bought by government-sponsored Fannie Mae and Freddie Mac, from $417,000 to as much as $625,500 in high-cost housing markets.’

My take: I will be shocked -- shocked! -- if such an increase proves temporary.

Update: Why did the administration roll over on this issue? Its opposition to higher loan limits for Fannie Mae and Freddie Mac is well known. From NYTimes.com: ‘Mr. Paulson, at a news conference, acknowledged that he was not happy about that. “I got run down by a bipartisan steamroller,” he said. “Republicans and Democrats reunited on this.” I suspect if the truth were knowable, the higher limits had three powerful blocs of support: members of Congress from high-cost areas (Pelosi, etc.), the real estate lobby and, probably most important, banks and lenders. Bank of America has to be very, very happy with this.

The White House does not mention the higher loan limits in its description of the stimulus plan here. One argument against higher loan limits is that it increases Fannie and Freddie’s exposure to the housing bubble, with predictably negative consequences.

Comments? Insights? E-mail story tips to peter.viles@latimes.com
Photo Credit: Treasury Secretary Paulson and President Bush, via Whitehouse.gov.