Lower rates for some borrowers
As many as perhaps a million home buyers will catch a slight interest rate break next year, thanks to one of the largest increases on record in the so-called conforming loan limit.
Beginning Jan. 1, the ceiling on loans that can be purchased or securitized by Fannie Mae and Freddie Mac will jump nearly 16 percent, to $417,000. The current maximum is $359,650. The ceilings of government-based FHA and VA loans also will rise next year.
The change in the Fannie-Freddie maximum means that buyers and refinancers who would have exceeded the old limit in 2005 will see their loans costs decline by from 0.25 to 0.5 percent, as long as they remain under the new ceiling.
The huge $57,350 increase comes at an opportune time for the housing market. Interest rates have been creeping up of late, and are expected to rise further in the coming months. Ironically, though, the rate of house price appreciation has began slowing in many markets. And in some places, according to the latest figures, prices actually are beginning to recede from record levels.
According to the California Association of Realtors, the median price of existing houses statewide in October was $538,770. But the median is much higher in some regions. It is $601,850 in San Diego, $557,730 in Los Angeles and $719,660, the highest in the state, in San Francisco.
Borrowers get a break in rates that are at or below the conforming loan limit because investors worldwide believe the mortgage-backed securities created by Fannie and Freddie are backed by the full faith and credit of the federal government.
The higher limit isn't likely to create many new buyers because those who can afford houses in the $360,000-$417,000 price range probably would have proceeded whether their loans are any less expensive or not, according to economists at the Mortgage Bankers Association.
Nevertheless, Fannie Mae estimates that more than 466,000 borrowers will benefit from lower cost financing next year. Freddie Mac says as many as a half-million borrowers will benefit. Those estimates do not include thousands more households who use government financing to buy a new house or refinance the ones they already are in.
The ceiling on loans insured by the Federal Housing Administration also will rise next years, to about $362,790 (87 percent of the Freddie Mac limit) in about three dozen high cost markets. The current FHA maximum is $312,895.
In addition, the maximum no-downpayment loan that will be guaranteed by the Veterans Administration also will be $417,000 in 2006.
Eligible veterans can still purchase higher-priced houses, but because the VA "guaranty" is accepted by some lenders as a substitute for a 25 percent downpayment, buyers will have to put up $1 of their own money for every $4 they want to borrower above the limit.
Neither Fannie Mae, Freddie Mac, the FHA or VA make loans directly to consumers. Fannie and Freddie, which are quasi-government agencies that guarantee the timely payment of principal and interest to investors, keep the money flowing to housing by purchasing loans from local lenders and packing them into investment-grade securities for sale worldwide.
The FHA insures loans made by private lenders and is considered a last resort for borrowers who don't measure up to Fannie and Freddie's stricter underwriting guidelines. And the VA guarantees to make lenders whole should borrowers default on their loans.
Beginning Jan. 1, the ceiling on loans that can be purchased or securitized by Fannie Mae and Freddie Mac will jump nearly 16 percent, to $417,000. The current maximum is $359,650. The ceilings of government-based FHA and VA loans also will rise next year.
The change in the Fannie-Freddie maximum means that buyers and refinancers who would have exceeded the old limit in 2005 will see their loans costs decline by from 0.25 to 0.5 percent, as long as they remain under the new ceiling.
The huge $57,350 increase comes at an opportune time for the housing market. Interest rates have been creeping up of late, and are expected to rise further in the coming months. Ironically, though, the rate of house price appreciation has began slowing in many markets. And in some places, according to the latest figures, prices actually are beginning to recede from record levels.
According to the California Association of Realtors, the median price of existing houses statewide in October was $538,770. But the median is much higher in some regions. It is $601,850 in San Diego, $557,730 in Los Angeles and $719,660, the highest in the state, in San Francisco.
Borrowers get a break in rates that are at or below the conforming loan limit because investors worldwide believe the mortgage-backed securities created by Fannie and Freddie are backed by the full faith and credit of the federal government.
The higher limit isn't likely to create many new buyers because those who can afford houses in the $360,000-$417,000 price range probably would have proceeded whether their loans are any less expensive or not, according to economists at the Mortgage Bankers Association.
Nevertheless, Fannie Mae estimates that more than 466,000 borrowers will benefit from lower cost financing next year. Freddie Mac says as many as a half-million borrowers will benefit. Those estimates do not include thousands more households who use government financing to buy a new house or refinance the ones they already are in.
The ceiling on loans insured by the Federal Housing Administration also will rise next years, to about $362,790 (87 percent of the Freddie Mac limit) in about three dozen high cost markets. The current FHA maximum is $312,895.
In addition, the maximum no-downpayment loan that will be guaranteed by the Veterans Administration also will be $417,000 in 2006.
Eligible veterans can still purchase higher-priced houses, but because the VA "guaranty" is accepted by some lenders as a substitute for a 25 percent downpayment, buyers will have to put up $1 of their own money for every $4 they want to borrower above the limit.
Neither Fannie Mae, Freddie Mac, the FHA or VA make loans directly to consumers. Fannie and Freddie, which are quasi-government agencies that guarantee the timely payment of principal and interest to investors, keep the money flowing to housing by purchasing loans from local lenders and packing them into investment-grade securities for sale worldwide.
The FHA insures loans made by private lenders and is considered a last resort for borrowers who don't measure up to Fannie and Freddie's stricter underwriting guidelines. And the VA guarantees to make lenders whole should borrowers default on their loans.
posted by Ken Calhoon at 7:44 AM
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