Government Helps Out the Large Mortgage Holders

The San Francisco Chronicle reports:

Buying or refinancing a house in the pricey Bay Area?

You could get a big break on your mortgage from the economic stimulus package announced Thursday.

Besides its core purpose of providing tax refunds, the tentative package - which still has several hurdles to clear - essentially rewrites the definition of "jumbo" loan, raising the cap from its current $417,000 to as high as $729,750 in high-cost areas for one year.

That would mean home buyers who need the high-ticket mortgages this area requires could qualify for the benefits now limited to non-jumbo, or conforming, loans: an interest rate that's roughly a full percentage point lower.

On a $650,000, 30-year fixed-rate mortgage, the savings could be $417 a month, according to California Sen. Barbara Boxer's office.

"This is exactly what we need for California," said David Crane, Gov. Arnold Schwarzenegger's adviser on jobs and economic growth, reacting to news that the White House and bipartisan Congressional leadership had agreed to raise the loan cap.

"There is no issue of greater importance to the California economy than the availability of (housing) credit," Crane said. "When people can't get credit, housing prices decline, you can't get new buyers in, and people can't refinance existing, expensive, subprime or other loans. This is critical."

The proposal would allow Fannie Mae and Freddie Mac to buy loans up to 125 percent of an area's median home value - up to $729,750 - well above their current $417,000 limit. While the new limit would vary based upon how expensive an area is, almost all of the Bay Area would automatically merit the $729,750 cap by virtue of having medians above $600,000.

Fannie and Freddie are government-sponsored entities that inject liquidity into the mortgage market by purchasing loans and then either keeping them or packaging them into securities sold to investors - with a guarantee in case they default.

Fannie and Freddie sure are special!