Home loan limits expected to rise

March 4, 2008 7:47:10 PM PST
Home loan limits are expected to go up sometime in mid March. When that happens, thousands of California families could benefit from affordable government-insured mortgage loans.

Thousands of California families could soon benefit from affordable government-insured mortgage loans, which would mean larger loans available in the higher priced California real estate market.

That optimistic picture came form the Secretary of Housing and Urban Development, who was in San Francisco on Tuesday. Secretary Alphonso Jackson says this may be the best chance to get a fixed mortgage rate.

Interest rates on conforming loans are always lower than on a jumbo loan. Last month, Congress made it easier for more Americans to get conforming loans by increasing the limit on these loans from $271,000 to $729,000. The question is, how low will the interest rate on these loans fall?

Freddie Mac, the world's second largest buyer of home loans, predicts the interest rate on a 30 year-fixed could fall to 5.5 percent.

In San Francisco Tuesday, the head of the Department of Housing and Urban Development (HUD) said it may happen.

"I think that we will see another cut in the interest rate. I think that we still must begin to cut the interest rate to keep the economy pumping," says HUD Secretary Alphonso Jackson.

Lower interest rates usually motivate more people to buy or refinance a home, therefore stimulating the economy.

"If housing prices come down a little bit, it will make homes more affordable to more people," says Lynn Sedway, a real estate economist.

These new conforming loans may be available as early as mid-March. However, the higher limit will expire at the end of the year. Some say that's a problem for California.

"California needs to have the mortgage market stabilized. It needs to be able to go back and refinance and needs to be able to buy new homes to set pricing levels where they should be in the marketplace," says Leon Huntting, the former president of the California Association of Mortgage Brokers.

California's governor says these higher loan limits will be helpful, but they won't be enough to help California rebound from the mortgage crisis. Governor Schwarzenegger is lobbying to keep these limits on conforming loans permanent in California.

"When you look at California, paying an affordable house is about $450,000. It's not $175,000 that you would see in Dallas. So, I think we're going to have to address it by region," says Jackson.

Now, it's up to Congress to vote on a more permanent economic stimulus package.