FHA Loans from the Federal Home Loan Mortgage Corp

Local congressman Jerry McNerney, D-Pleasanton, has penned legislation to change the current federally-backed Freddie Mac, Fannie Mae and Federal Housing Administration loan limits from temporary to permanent.

The loans from the Federal Home Loan Mortgage Corp. , Federal National Mortgage Association and the FHA were raised to $729,750 for a single-family home as part of the Bush administration´s Economic Stimulus Package until the end of this year. With Rep. McNerney´s legislation, the new amount will become a fixture for Bay Area buyers.

"The foreclosures in San Joaquin County are horrendous," McNerney said. "It´s affecting all sections of the real estate market and we need something that will help stabilize the market and instill confidence in the market."

McNerney said that creating new legislation ensuring the loan limits is a way to help homeowners maneuver through tightened credit and a slow housing market.

"Making it permanent may make it more likely to help," said Cynthia Kroll, a senior regional economist for the Fisher Center for Real Estate and Urban Economics at UC Berkeley. "It´s clearly early days to know if that temporary increase is going to help or not."

Kroll said that making the new limits permanent could motivate lenders to restructure loans more favorably and ultimately lead to lower loan rates. But she said that it was still too early to predict success.

The FHA federally insures its loans, while Freddie Mac and Fannie Mae are government-sponsored enterprises that exist to buy lenders´ mortgages on the secondary market and free up cash so banks and other entities can make more home loans.

For Jed Kolko, a research fellow at the San Francisco-based Public Policy Institute of California, the loan caps are an issue of fairness to those in the Bay Area.

"A person can buy an extravagant house in smaller, inland places that will meet the limit and therefore be able to get lower interest rates, while someone could only afford a smaller and modest home in bigger coastal cities," he said.

While prices have been dropping, they haven´t fallen to an extent where a higher loan cap is a bad idea. "Prices are falling, but the gaps in prices aren´t necessarily falling," he said.

First Horizon loan officers Ed Jeffry and Luke Currier said they think keeping the limits permanent could only be a good thing. The appetite for the secondary market loans, where lenders sell the loans to the government-sponsored enterprises to raise cash, will more than likely improve and keep the rate down, he said. So far interest rates have dropped about 1 percent from when they first made an appearance.

"I think making the limits permanent gives the economy more time, and as things get better it creates opportunity as they recover financially," Jeffry said.

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