Stimulus Package Passes, Conforming Limits Raised in High Cost Areas

by Alex Stenback on February 8, 2008

The stimulus package temporarily raises the maximum size of mortgages that government-sponsored mortgage companies Fannie Mae and Freddie Mac can purchase and market as securities from $417,000 to as high as $729,750 in expensive parts of the country such as New York and California.

Stimulus Plan Helps Some Homeowners [AP]

{ 3 comments… read them below or add one }

Nate February 8, 2008 at 12:34 pm

Another quote from the OFHEA Director James Lockhart’s testimony to the senate.

“Capital also would present challenges even if all newly conforming mortgages are securitized. A $600,000 loan requires as much capital as three $200,000 loans. . .”

Each jumbo mortgage Fannie Mae or Freddie Mac buys ties up capital that could have instead been used to secure more loans at a lower limit. Fannie Mae and Freddie Mac have limited capital, and have currently been providing a lot of the liquidity in the mortgage markets. If more of their capital is now going to be tied up in fewer jumbo mortgages, it seems this could have a reverse of the desired effect and actually reduce liquidity in the market.

Not to mention that they don’t have risk models for jumbo mortgages, or a great track record of appropriately handling risk anyway. People who trade in these securities have so far seemed unwilling to accept these higher risk mortgages at the same rates as the lower conforming limit mortgages.

Looks like a better than fair chance to result in higher costs for everyone else in order to bail out specific markets.

Congress may have been a bit too quick in giving the banks what they wanted.

Brent February 12, 2008 at 3:51 pm

Does anyone know which markets will be affected by the higher conforming loan limits? Minneapolis?

Alex/Editor February 12, 2008 at 3:57 pm, or just click on the conforming limit increase tag at the bottom of this post.

Only FHA is impacted in the Twin Cities.

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