The biggest winners in the economic rescue plan now awaiting President Bush's signature are likely to be Americans with more expensive homes who will be able to refinance their home loans at cheaper rates.
For those who can take advantage of them, the bill's mortgage market provisions are likely to give more of a long-term financial boost than the tax rebates that many of us in the valley will never see.
The stimulus package temporarily raises the maximum size of mortgages that government-sponsored mortgage companies Fannie Mae and Freddie Mac can purchase and market as securities from $417,000 to $729,750. It also makes a similar change for FHA loans.
As defaults have surged, investors have been extremely skittish about the U.S. mortgage market. With less money available to loan, banks are charging much higher rates for riskier loans that can't be sold to Fannie and Freddie....the so-called Jumbo Loans. Raising the caps should result in a refinancing boom for those properties. The problems that we foresee are that that thee new limits are due to expire by year-end unless Congress makes the changes permanent, and that the impact of the changes is likely to take several months to be felt in the mortgage market. Doug Duncan, chief economist at the Mortgage Bankers Association said investors will want to study default levels on loans above $417,000, and prices could reflect a higher level of risk until that is known.
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