Fannie Mae, Freddie Mac raise loan limits, Bay Area jumbo mortage rates may drop

The San Jose Mercury News reports:

Federal officials on Thursday took another step to make big mortgages more available - and possibly cheaper - in high-cost areas of the country like Santa Clara County by announcing higher limits for the loans eligible for guarantees by Fannie Mae and Freddie Mac.

Legislators home the move, part of the economic stimulus package signed by President Bush last month, could reduce rates for certain "jumbo" mortages that many Bay Area homebuyers take out because prices are so high here.

Jumbo loans carry much higher interest rates than the so-called "conforming" loans packaged and sold to investors by the two mortgage institutions.

The Office of Federal Housing Enterprise Oversight, which oversees Fannie and Freddie, said today that that "conforming loan limit" will be increased until Dec. 31 from $417,000 to $729,750 in most Bay Area counties.

They include Santa Clara, San Mateo, Alameda, Contra Costa, San Francisco, Marin and Napa. That new limit also applies in Santa Cruz, San Benito and Monterey counties.

On Wednesday, the U.S. Department of Housing and Urban Development announced that the limit on separate loans backed by the Federal Housing Administration also would rise to $729,750 in those counties.

Local mortgage professionals say they still don't know exactly when they will be able to fund loans at the new limits, and what the interest rates will be. Details are still being worked out among government agencies and

lenders.

However, if the spread between the rates charged by Wells Fargo for conforming and jumbo loans is any indicate, the savings could be substantial for some borrowers.

Wells Fargo's Web site on Thursday afternoon showed the rate for a 30-year fixed-rate jumbo loan was 8.25 percent, 1.75 points higher than the 6.5 percent rate on conforming loans with the same term.