If you have been hoping to buy your first home, or if you have been thinking about refinancing your existing mortgage, a little-noticed announcement by two quasi-governmental agencies last week could provide you with a reason to give thanks.
The Federal National Mortgage Assn., commonly called Fannie Mae, and the Federal Home Loan Mortgage Corp., or Freddie Mac, said they would soon begin buying mortgages as big as $191,250--up from their current limit of $187,450.
"It's not a huge increase, but every little bit helps--especially if you live in an expensive housing market like the one we have in California," said Bob Garman, senior vice president with Directors Home Loan Mortgage Corp. in Riverside.
Fannie Mae and Freddie Mac don't make loans directly to borrowers. Instead, they buy loans that have been made by private financial institutions, pool them and then sell shares in the pools to investors.
The lenders then take the cash they get from Fannie or Freddie and use it to make new loans to other borrowers.
Each year, the federal Housing Finance Board adjusts Fannie Mae and Freddie Mac's loan limits based on changes in the price of a typical American home.
Because prices in the West and many other parts of the country have been falling, some experts had predicted that the loan limit would actually drop instead of rise.
But steady appreciation in the Midwest and a few other parts of the country offset price weakness in other segments of the U.S. housing market, allowing Fannie Mae and Freddie Mac to raise their limits.
The $3,800 increase will primarily help would-be buyers and refinancers in California and other high-cost states, Garman said, because that's where most large loans are made.
The increase is expected to help 5,000 buyers get a lower-rate mortgage in California alone, according to researchers at the California Assn. of Realtors.
"The increase in the ceiling won't have any effect on you if you're only looking for a $100,000 loan," banker Garman said. "But if you're looking for a much larger loan, the higher ceiling could save you some money."
To understand how the higher limit might let you keep a little extra cash in your pocket, you need to know the difference between a "conforming" loan and a "nonconforming" mortgage.
A conforming loan is a loan that either Fannie Mae or Freddie Mac can purchase from a lending institution. On Jan. 1, the conforming limit will be raised to $191,250.
Since a lender knows that it can sell its conforming loans to Fannie or Freddie and thus remove the loans from its books, it's willing to give you a slightly lower rate than it charges for nonconforming mortgages--typically called "jumbo" loans--of more than $191,250.
Rates on fixed-rate, conforming loans currently stand at about 10%. Rates on jumbo loans are about 10 1/4%.
If you took out a $190,000 loan today, your monthly payment for principal and interest would be about $1,705. That's because you'd be charged the jumbo rate of 10 1/4%.
But if instead you waited until Jan. 1 to buy a house or refinance your existing mortgage, you'd probably get a 10% rate because it would be considered a conforming loan. So, your payment would be about $1,665--a monthly savings of $40.
Most lenders are already offering the lower conforming rates on mortgages up to $191,250.
However, if you're seeking a loan amount that's between the old limit of $187,450 and the new limit of $191,250, you probably won't be able to actually get the money until at least Jan. 1--the date that the new limit officially takes effect.
Regardless of whether the loan you want is under or over the new limit, you might want to wait a month or two before you take the loan out.
"I'd say rates are going to go down between a quarter-point and half a point over the next couple of months because oil prices are dropping and we're slipping into a recession," said John Tuccillo, chief economist of the National Assn. of Realtors.
"If you don't need the cash right away, you might want to hold off a little longer before you borrow the money. If I'm right and rates go down, you'll save yourself some money."
As an alternative, banker Garman said, you could fill out your loan application now but instruct your mortgage banker or loan officer to hold delivery of the money until mortgage rates have dropped.
Bill Maloni, an official with Fannie Mae, said limits on the size of multifamily loans that the agency can buy will also increase.
Effective Jan. 1, the Fannie and Freddie limits for a duplex will rise to $244,650, up from $239,750. For a triplex, the limit will rise to $295,650 from $289,750.
The limit for a four-unit complex will increase to $367,500 from $360,150.
Limits in Alaska and Hawaii will be 50% higher because of their high cost of living, Maloni said.
AVERAGE RATES FOR RESIDENTIAL MORTGAGES
Average rates for residential mortgages as of Nov. 16, 1990.
Survey Conventional Mortgages Adjustable Mortgages Area 15 Year 30 Year Composite 1 Year Composite National 9.75% 10.06% 9.92% 8.00% 8.31% California 9.95 10.27 10.12 8.24 8.24 Connecticut 9.79 10.12 9.98 8.08 8.32 Wash. D.C. 9.61 9.95 9.80 7.66 8.01 Florida 9.81 10.10 9.97 8.01 8.28 Mass. 9.82 10.12 9.98 8.11 8.47 New Jersey 9.74 10.02 9.90 7.93 8.37 N.Y. Metro 9.82 10.12 9.99 8.05 8.41 New York 9.91 10.22 10.09 8.15 8.48 N.Y. Co-ops 10.11 10.42 10.28 8.39 8.78 Pa. 9.46 9.80 9.64 7.66 7.76 Texas 9.49 9.85 9.68 7.91 8.07
SOURCE: HSH Associates, Butler, N.J.