WASHINGTON – An economic stimulus bill that passed the House last week could add much-needed liquidity to the mortgage markets by allowing Fannie Mae and Freddie Mac to buy jumbo loans in certain hard-hit real estate markets, such as Southern California.
The stimulus package, which now goes before the Senate, would raise the conforming limit on loans Fannie and Freddie could buy from the current $417,000 on a temporary basis to as much as 125% of the median area home price. The provisions would be retroactive to July 2007 and terminate in December of this year.
Daniel Penrod, analyst in the California CU League’s research and information department, said the provision could help ease the crunch at some of the hard-hit California credit unions by allowing them to sell additional mortgages in the high-priced markets there, thus adding liquidity to the secondary market.
While the median home price in many U.S. markets is below the current $417,000 conforming loan limit, in some markets, such as Los Angeles, it is well above that. A starter home in Los Angeles, for example, usually puts the borrower into the jumbo market and the loans off limits to Fannie or Freddie.
Since July when the mortgage crisis began to hit, interest rates for jumbo loans have risen significantly above those for conforming loans, cutting jumbo loan originations in many high-priced markets.
