…expect a big pickup in Bay Area real estate activity.
Besides its core purpose of providing tax refunds, the tentative package - which still has several hurdles to clear - essentially rewrites the definition of “jumbo” loan, raising the cap from its current $417,000 to as high as $729,750 in high-cost areas for one year.
The proposal would allow Fannie Mae and Freddie Mac to buy loans up to 125 percent of an area’s median home value - up to $729,750 - well above their current $417,000 limit. While the new limit would vary based upon how expensive an area is, almost all of the Bay Area would automatically merit the $729,750 cap by virtue of having medians above $600,000.
Fannie and Freddie are government-sponsored entities that inject liquidity into the mortgage market by purchasing loans and then either keeping them or packaging them into securities sold to investors - with a guarantee in case they default.
Ever since the credit crunch hit last summer, banks have been skittish about writing mortgages that don’t qualify for Fannie/Freddie backing. That’s why jumbos got so expensive relative to conforming loans, and jumbo borrowers needed to have good income, a big down payment and a stellar credit score.
Now what’s the catch, you say?
2. The new limits are supposed to only last for 1 year. Which means that if this passes, 2008 is going to be a mad sprint.
flickr photo credit reversezer0 tag: bay bridge (ironic eh?)
