Real Estate

Stimulus plan also sparks housing market

The measures would make mortgages easier to get and reduce borrowing costs -- especially in hard-hit, high-cost housing markets.

Subscribe to Real Estate
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all CNNMoney.com RSS FEEDS (close)
By Les Christie, CNNMoney.com staff writer

Mortgage Rates
30 yr fixed 4.19%
15 yr fixed 3.23%
5/1 ARM 3.34%
30 yr refi 4.17%
15 yr refi 3.21%

Find personalized rates:
 

Rates provided by Bankrate.com.

NEW YORK (CNNMoney.com) -- The economic stimulus plan announced Thursday by Congress and the Bush administration includes provisions that specifically address the mortgage crisis. It aims to make getting a mortgage easier and cheaper in high-cost markets, to facilitate refinancing and to prevent foreclosures.

The package proposes lifting the dollar amount of loans that are eligible for purchase by Freddie Mac (FRE, Fortune 500) and Fannie Mae (FNM) and that can be insured by the Federal Housing Administration (FHA). The cap limits for FHA loans, which offer protection to lenders against losses that result from defaults by borrowers, would be raised to $725,000 and would be permanent.

These government sponsored enterprises currently guarantee a secondary market for loans of less than $417,000, which makes lenders more willing to issue them. The stimulus package proposes raising that cap to $625,000 for twelve months in order to make it easier for buyers to get or refinance mortgages - especially in high-cost regions like California.

"It's about time," said Richard DeKaser, chief economist for banking giant National City Corp. "The idea has rattled around Congress for a year. Most analysts agree the market for "jumbo" loans [which exceed the cap limits] has been hurt by lender flight."

The increased cap should give a boost to some of the most sluggish markets in the nation, like Florida, where high home prices typically mean that mortgages exceed the $417,000 loan limits. When credit markets contracted last summer, jumbo loans over that amount became much harder to get and, as a result, home sales in pricey markets took a hit.

"This will have a big, immediate impact, especially in California where sales have been down most significantly," said Lawrence Yun, chief economist for the National Association of Realtors.

Homeowners with jumbo mortgages also pay higher interest rates because, with no guaranteed secondary market for the loans, lenders take on more risk, and charge borrowers more for doing so.

For instance, the interest rate difference between loans that fall within the cap limit and jumbo loans was more than 1 percent on Thursday -- 6.39 percent compared with 5.30 percent, according to Bankrate.com. On a $500,000 mortgage, the difference is about $350 a month.

Pain relief for mortgage fare-ups

"The 1 percent drop is a huge factor," said Yun. "In California, it could create a mini-boom."

Before the stimulus package was announced, analysts including Merrill Lynch had come out with dire forecasts for housing markets over the next couple of years.

But, said Mike Larson, a real estate analyst with Weiss Research. "[the raise in loan limits] could remove some of the inventory overhang and alter the buyer psychology a bit. Right now they're still waiting for prices to fall."

Yun added, "There's a lot of pent-up demand in the market. This will boost confidence among these potential buyers, and some of the people on the fence will start buying."

The National Association of Realtors recently projected that a higher loan limit, which the organization and other industry trade groups have been lobbying for, would boost home sales by nearly 350,000 a year.

It would also reduce the average period of time a home sits on the market by a month and a half, and lift prices by two or three percentage points.

Home price increases could help keep foreclosures in check by increasing a distressed owner's home equity, making it easier for them to refinance.  To top of page



Photo Galleries
The 13 most WTF gadgets From the weird to the gross, these 13 gadgets will make you wonder why the even exist. More
Best-loved cars in America These cars and trucks topped J.D. Power's APEAL survey, which measures how much owners like their new vehicles. More
America's most powerful cars A new 'horsepower war' has erupted among U.S. automakers and these are the most potent weapons in their arsenals. More
Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.
Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.