Stimulus Package

Tomorrow President Bush is likely to sign into law the recently passed economic stimulus bill. It raises the limit on the size of mortgage that Fannie Mae and Freddie Mac may purchase and that the Federal Housing Administration (FHA) may insure. In both cases, the increases are temporary and apply only to loans originated by the end of 2008. If signed, Fannie and Freddie may purchase loans up to 125% of the median home price in an area, up to a national limit of $729,750. YAHOO!!!

FHA limits, and I assume VA, would see the same increase, and the floor on FHA limits would be raised so that larger FHA-insured loans would become available in low-cost areas. Goldman Sachs believes that area-specific loan limits for the GSEs and FHA should be issued by mid-March. The exact impact on pricing and rates is unknown, nor are the changes in underwriting guidelines and the impact of lost equity: in cities where the increased limits are likely to apply, the Case-Shiller index now stands below its late 2005 levels.