Big mortgages: Harder to get and more expensive

Buyers of luxury homes in some localities will find obtaining mortgages a bit more chalenging due to caps on loans.

NEW YORK (CNNMoney) -- Starting Saturday, the beleaguered housing market will confront the latest hurdle to its recovery: The size of mortgages that the federal government can back will be drastically reduced in high-priced regions.

When the bubble burst, mortgage banks had virtually stopped lending, except for government backed mortgages, which were capped at $417,000. Buyers of high-priced homes, mostly on the coasts, found themselves frozen out of the market, unable to get the bigger, "jumbo" loans that they needed.

So, back in early 2008, the government backed enterprises Fannie Mae (FNMA, Fortune 500) and Freddie Mac (FMCC, Fortune 500) raised the cap on loans they could back to as much as $729,750 in the most expensive housing markets.

Now, home prices are stabilizing -- but down more than 30% from their peak -- and the government wants private capital to jump back into mortgage lending. So the caps are being reduced, to different levels in different parts of the country. This will make it more expensive and harder for some buyers to finance their purchases.

The housing industry is not happy.

"Nobody wants to see anything that would cause even a single buyer to change his or her mind," said Keith Gumbinger of HSH Associates, a provider of mortgage information.

Fortunately, this action will affect few homebuyers. Of the more than 3,000 counties in the United States, only about 250 had home prices high enough to require a loan of more than $417,000.

The new cap would have prevented Fannie and Freddie from purchasing only about 50,000 mortgages in 2010, worth about $30 billion, compared with the $600 billion in mortgages they acquired during the year.

And, the loan limits won't revert all the way down to the national base of $417,000. For instance, in Los Angeles the cap will drop to $625,500, so the only buyers who will be affected are those who need a loan in excess of that amount.

Mortgage rates hit record low

For them, getting a mortgage will cost extra. Currently, jumbo loans backed by Fannie and Freddie carry interest of about 4.31% for a 30-year mortgage. A privately issued jumbo loan would have about a 4.66% rate, adding about $146 a month to the payment on a $700,000 balance.

All told, though, the new caps probably will impact no more than 2% to 4% of the market, according to Gumbinger. And many of the well-heeled homebuyers who do get shut out should be able to fend for themselves financially. They'll just have to spend a little more.

"The private market is a wide open, wild-and-wooly place," said Gumbinger. "The availability of money becomes more variable and the price of that money higher."