Fannie Mae and Freddie Mac will increase their maximum loans for one units properties from $417,000 to $729,250 starting April 1, 2008. This measure that was part of the stimulus package recently signed combined with the decision to reduce their capital reserves from 30% to 20% will infuse about $200 billion in the mortgage market.
Those funds in turn will allow the two companies to purchase more loans in the secondary market and provide liquidity to lenders. The impact of these actions will be greater on the jumbo segment of the mortgage market. Jumbo loans production has almost dried out with the cash crunch simply because lenders did not want to shoulder the high risk associated with these loans. By raising the loan limts, these high end mortgages now have an outlet that they did not have before.
The stated objectives appear promising but we will have to wait and see how well they operate under the more stringent lending requirements instituted in the aftermath of the foreclosure epidemic. One thing is sure: the measures will help some well qualified borrowers who were left out of the market on the basis of the size of their loans.
We must continue to keep a weary eye on appraisals and the impact of risk based lending policies.
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