Congress holds limits for home loans at nearly $730,000 for another year

Congress holds mortgage limits at nearly $730K

WASHINGTON — Congress has extended a policy that allows homeowners in pricey real estate markets to secure government-backed mortgages of nearly $730,000.

Lawmakers have voted to keep the maximum size of loans guaranteed by Fannie Mae and Freddie Mac and the Federal Housing Administration at the current level through the end of 2011.

Those limits apply in expensive areas like New York and San Francisco. Without the change, the limits would have fallen to about $625,000. The limit was $417,000 before 2008 and remains at that level in most of the country.

The measure was included in a temporary spending bill that lawmakers sent to President Barack Obama early Thursday.

Real estate agents, mortgage bankers and homebuilders lobbied to keep the upper limit in high-priced markets, arguing that the housing market would suffer if the limits were not extended. Critics argued that lower limits would help wean the housing market off government support.

Keeping the current limit will help about 60,000 borrowers annually, estimated Mahesh Swaminathan, a mortgage analyst with Credit Suisse.

Even though relatively few borrowers will be assisted, Guy Cecala, publisher of trade publication Inside Mortgage Finance, said lawmakers are focused on keeping the struggling housing industry happy.

“Nobody wants to oppose or upset the Realtors and the homebuilders in an election year,” he said.

Anything above the limit set by Congress falls into a category known as “jumbo” loans. They made up 5 percent of the mortgage market this year, down from a typical level of about 18 percent, according to Inside Mortgage Finance, a trade publication.

During the financial crisis, mortgage lenders became far less willing to make those loans. In December 2008, borrowers who wanted a jumbo loan were paying 1.8 percentage points higher on their mortgage rates than convential government-backed loans, according to financial publisher HSH Associates.

That gap narrowed as the crisis eased. As of last week, borrowers who receive jumbo loans were paying a premium of 0.8 percentage points, according to HSH. That’s still above a pre-crisis level of 0.25 percentage points.