Fannie: That Pricey Ski Chalet Can Now Be Yours!

Higher limits on mortgage loans mostly help those who don't need help.

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To everyone in well-to-do America putting off buying a new house because jumbo mortgage rates are way too high, take heart!

Thanks to the recent passage of the economic stimulus package—which includes a provision raising the limits on loans backed by mortgage giants Fannie Mae and Freddie Mac—folks in places like Vail, Colo., Washington, D.C., and Hawaii can look forward to interest rates that match those for cheaper houses.

Amid the credit crunch, rates on jumbo loans (which until today were defined as any mortgage over $417,000) jumped as high as a full percentage point above those that conformed to Fannie and Freddie's standards. That is, if you could secure one at all. Without a ready market for big-dollar mortgages, the jumbo market seized up last August as secondary-market buyers of such mortgages all but disappeared.

With the higher limits, Fannie will now guarantee loans up to $729,750 in about 60 counties around the country, and up to $793,730 in Honolulu, Hawaii, which with a 20-plus percent down payment would get you pretty close to a million-dollar house.

The question, of course, is whether raising the limit on conforming mortgages is actually going to make much difference in the big picture of things.

It certainly won't in the vast majority of the country, where the $417,000 loan limit remains intact. Hard-hit places like Florida's Sarasota County (where the median home price has fallen by nearly 13 percent over the past year) will see the limit rise by only about 6 percent, to $442,500, while California's San Joaquin County (where prices are down more than 15 percent) will see a 17 percent increase, to $488,750.

Yet in the latest installment of his weekly Mortgage Credit News column, mortgage banker Lou Barnes argues that "housing is sinking because of credit starvation, not the other way around." Ipso facto: The raising of the Fannie-Freddie limits can only mean more available credit and more people willing to plunk down more money to buy their dream house.

By itself, raising the limit isn't going to mean a thing unless the house is selling for no more than it's been appraised for—something that is far from assured in these post-boom days of massive foreclosures, which are driving down the comps appraisers use to judge what a home is worth.

Indeed, two days before announcing the higher limits, the mortgage giants agreed to abide by stricter rules that would prohibit lenders from trying to influence appraisals.

Such influence—even outright collusion—has been blamed for much of the house price inflation that went on during the boom years. (I, for one, remember feeling deeply suspicious upon learning that the appraisal for the house I'd bid on to buy in Washington three years ago exactly matched the selling price. What a coincidence!)

If, in fact, the improved appraisal standards ensure that homeowners won't get into high-priced houses that aren't actually worth what they're paying for them, then I suppose the higher limits will at least improve the chance that those who can afford such homes are actually able to buy them.

Thing is, I suspect that's a relatively small (read: well-to-do) portion of the folks now being hurt by the mortgage credit crunch.

Case in point: Will the new loan limit increase actually help you?