Federal limits are raised on jumbo mortgages

The federal agency that regulates Fannie Mae and Freddie Mac temporarily raised the cap on the size of mortgages the government-sponsored financial giants can buy or guarantee in 71 housing markets, including nearly all of Southern California.

Under a newly enacted economic stimulus package, the companies will be permitted to finance loans as large as $729,750, up from $417,000, in an effort to stabilize the housing finance sector. The new loan levels vary based on each market’s current home prices.

In Southern California, the limits were raised to the maximum $729,750 in Los Angeles, Orange and Ventura counties, to $697,500 in San Diego County and to $500,000 in Riverside and San Bernadino counties.

The Office of Federal Housing Enterprise’s new limits apply to home loans originated from July 1, 2007, through the end of this year.

Congress hopes the higher caps will make it easier for homeowners and home buyers to obtain so-called jumbo loans -- those for more than $417,000, the regular cap on mortgages bought by Fannie Mae and Freddie Mac.

Since heavy defaults on sub-prime mortgages dried up investor interest last year in mortgage securities not issued by the two government-sponsored companies, interest rates on jumbo loans have risen significantly.