| The economic stimulus plan proposed by President Bush and Congress plans to specifically address the housing crisis. According to CNN.com, the stimulus plan aims to make obtaining a mortgage easier/cheaper in higher priced markets in order to facilitate refinancing and avoid foreclosures. In order to do this, Congress and President Bush plan on lifting the dollar amount from $417,000 to $625,000 for loans that are eligible for purchase by Freddie Mac and Fanny Mae, which can be insured by the Federal Housing Administration. Cap limits for FHA loans will be permanently raised to $725,000.  Rising home prices during the housing boom caused a surge in jumbo loan applications. Loans over $417,000 are considered to be Jumbo Loans and are generally more risky for lenders because luxury prices are more vulnerable to market highs and lows. Jumbo Loans typically carry higher interests rates because they are not backed by Freddie Man or Fanny Mae.
The proposed plan hopes to make it easier for borrowers to refinance mortgages, especially in high priced markets like New York and California. Because of the increased cap, Congress and economists hope to give a boost to some of the most sluggish markets in the nation, like Florida, where high housing prices typically exceed the $417,000 loan limits. Though most people feel the Economic Stimulus Plan is a good idea, the terms of the plan are being widely speculated and criticized. David Resler- chief economist at Nomura Securities says: "The most encouraging part of this proposal is the increase in the loan limit, which would provide a significant expansion of conforming loan rates to home buyers in states like California where the price declines have been most severe. It is a significant shot in the arm for markets were prices are relatively high." Ron Phipps- broker with Phipps Realty says: "Increasing the maximum conventional mortgage amount from $417,000 to $625,000 will save families $3,000 to $5,000 a year in interest, the delta between jumbo rates and conventional rates. We view that as very constructive and extremely helpful across the board in real estate. It will reduce the number of foreclosures and will save people money, which means more people can afford to buy more house. So we view all of that as most encouraging." Frank Zotto- realtor with Century 21 says: "A ceiling for conforming loans that is adjusted by locality introduces a new distortion. Increasing the subsidy to "high cost of living areas" will make "low cost of living areas" relatively less attractive. Additionally, this provision raises questions about the extent of the market and its heterogeneity (house characteristics). Where should market boundaries be drawn? And, if in one "market" the median home is more expensive because it boasts more bedrooms, a fireplace, or superior local amenities (like schools), why should it be subsidized?" |
