THE STIMULUS PACKAGE - BITS AND PIECES

As most of you know, the Congressional Stimulus Package was just passed and signed by the President. It has many features, including some accounting breaks for businesses and mortgage relief. What does it really mean to those who either want to refinance an existing loan, or purchase property?

Well, the choir is still out. Since this is February, my guess is that it will take until at least mid-March until it is all sorted out. But here are some of the things that are possible (and likely).

The stimulus package will raise the FHA and Conforming Loan limits (Fannie Mae and Freddie Mac’s - GSEs) to as high as $729,750 in high-cost areas. By increasing the loan limits, borrowers will see immediate relief with new liquidity in the mortgage market and the nation will see an additional 300,000 home sales. Research shows that an increase in the FHA limit would enable an additional 138,000 Americans to purchase homes, and 200,000 families to refinance their homes safely and affordably. But still to be determined is "what is considered a high priced area - is it by county, city, etc.?

Yes, increasing the FHA loan limits is critical to bolstering California’s housing market. Current law restricts FHA loans to levels well below the median home price in many areas of the country and caps loans in high cost states at $363,790. These limits are preventing many homebuyers from using FHA to purchase or refinance their loan. The new provision will increase FHA loan limits nationwide by raising the floor to $271,050 and the limit to 125% of local median home prices.

The National Association of Realtors has estimated that raising the conforming loan limit to $625,000 ($729,750 in high priced areas) would prevent 140,000 to 210,000 foreclosures and prop up home prices by 2 to 3 percentage points. But critics say increasing the limit could hurt Fannie and Freddie’s mission of helping low and moderate income families by putting them at greater financial risk.

What does this mean for you? It looks like with an increased loan limit your buyers will have an easier time qualifing for what once was considered a Jumbo Loan, and people who have good credit and equity in their home will be able to refinance to more favorable interest rates from a current jumbo loan they have on their home. This is all good....now, again, we just have to wait for the powers to be to tell us what will work in our area.

Also of note, Countrywide Mortgage has agreed to work with ACORN, a debt relief agency, to adjust the so-called sub-prime mortgages to a low fixed interest rate, no matter whether the loan is current or in default. There are many who would argue that this is just helping out those who should have known better from the beginning. But, if it helps slow that slew of foreclosures, it not only helps those in financial distress, but it helps all of us who are homeowners and want to see some stabilization in the home market and maintain the equity we have in our homes.

In addition, the Treasury Department and the White House are working with five other major lenders to do something along the same lines. It will be interesting to see how this works out.

More good news? Interest rates are nearing a 30 year low and the home inventory is up, and affordable. My guess is that we will bottom out sometime at the end of May, and see a relative stabilization in the real estate market. We will see how accurate my predictions are...stayed tuned.