By Mike Colpitts
In a crucial policy decision for the housing market, Congress extended the limit on jumbo mortgages the nation’s mortgage titans can purchase to nearly $730,000. Lawmakers agreed to extend the limits through 2011.
The measure was included as part of a temporary spending bill forwarded to President Barack Obama for his signature. The limits cover high cost real estate markets like Los Angeles, Boston, San Francisco and New York, where home prices would have been decimated without an extension on the upper limit.
Congress allowed mortgage titans Fannie Mae and Freddie Mac to purchase mortgages up to $729,750 two years ago to help the damaged housing market. The extension also applies to the Federal Housing Administration.
“Without the extension of the higher loan limits, many California borrowers would have a harder time refinancing homes and obtaining financing for new home purchases,” said California Association of Realtors president Steve Goddard.
Rep. Brad Sherman, a former Realtor lobbied members for the extension. The California Democrat introduced a bill to make the larger limits permanent and attracted 74 co-sponsors. Without the change the limit would have dropped to $625,000. Mortgages above that limit fall into a category known as jumbo loans, making up about 5% of the mortgage market this year, down from about 18% in a healthier market.
Jumbo mortgages have been more difficult for home buyers to qualify for as a result of stricter underwriting guidelines. In 2008 borrowers who wanted to purchase properties or refinance mortgages with the higher limits paid as much as 2-points in additional closing costs if they could qualify for the mortgage.
The fewer mortgages that the three government sponsored enterprises guarantee, the more difficult it is for borrowers to obtain loans. Jumbo loans usually carry higher mortgage interest rates than conforming loans, increasing monthly payments and hampering the ability of families to purchase homes by making them less affordable.
The higher limits may aid markets in moving towards a recovery, particularly in California, where a special state tax credit coupled with higher limits may extend a spike in home sales that has lasted more than a year. Highly qualified borrowers in California can purchase a home or condominium up to $750,000 in value with just a 3.5% down payment through an FHA-backed loan.