In a somewhat surprising move today, House Financial Services Committee Chairman Barney Frank reported that Congress’s Economic Stimulus Package would include an overhaul of the FHA mortgage insurance program and an increase in the conforming loan limit set forth by Fannie Mae and Freddie Mac.

The current conforming loan limit of $417,000 along with the FHA limit of $362,000 has made it difficult for homeowners and buyers to obtain favorable terms amid the credit crunch. The plan will allow Fannie Mae and Freddie Mac to purchase mortgages as high as $725,000 in high cost areas and allow FHA to secure mortgage loans as high as the $725,000.

It is not clear as of yet what will be defined as a “high cost area” and if these loan limits will vary by region, state, or county. What is for sure is that this plan will ease pressure in the higher priced areas and offer some relief to homeowners and buyers alike.

The idea is to allow more favorable financing in more expensive housing markets to help with ARM resets and to promote sales and uphold home prices. As it stands currently, this loan limit increase is temporary and will last for only one year.

Here is an example of the difference between traditional jumbo financing and conforming loan financing today from the same lender…

30 year fixed jumbo at Chase is 6.75%
30 year fixed conforming at Chase is 5.375%

On a loan size of $600,000, that is a monthly savings of $531.76 or $6,381.15 a year!

For a more detailed explanation of this plan and how it affects your business, contact Doug Fujikawa at www.dougfujikawa.com for details.