WASHINGTON - A component of the government's tentative economic stimulus package announced Thursday would give an immediate lift to buyers and sellers in higher-priced housing markets.
The package agreed upon by Democratic and Republican members of the House would allow government-sponsored Fannie Mae and Freddie Mac to buy mortgages up to 75 percent more expensive than the current $417,000 limit. The Senate and White House still must sign off on the proposed stimulus plan, which also includes tax rebates for Americans.
Raising the limit on so-called conforming loans will allow a larger pool of borrowers to find lower rates when buying a new home or refinancing an existing mortgage.
"It's good for homebuyers who have prime credit, have some money to put down and can meet tougher underwriting standards that are in place now," said Guy Cecala, publisher of Inside Mortgage Finance, a trade publication. For homeowners with blemished credit who are struggling to pay their mortgage bills, the change offers little benefit, he added.
House Speaker Nancy Pelosi and Republican Leader John Boehner of Ohio announced the deal in a press conference Thursday.
The higher cap, to be effective until the end of December, would breathe life into housing markets in New York, California and other pricey areas because lenders would feel more comfortable knowing Fannie and Freddie can buy and package the loans into securities that investors consider to be relatively safe.
Fannie and Freddie would be allowed to purchase loans up to $730,000, though that limit would differ based on the median home price in a particular metropolitan area.
The same limits would also apply for loans backed by the Federal Housing Administration, which insures loans made to borrowers with poor credit, though the change would be permanent for FHA-backed loans, which had been capped at $367,000.
The Bush administration has long been critical of how Fannie and Freddie operate, and officials have pointed to the companies' multibillion-dollar accounting scandals in recent years to bolster their case that Fannie's and Freddie's massive mortgage holdings are improperly managed and pose risks to the financial system.