- The Washington Times - Friday, February 15, 2008

Last week, I reported that the economic stimulus package designed to put some money into the

economy was poised to pass in Congress. Indeed, Congress passed the $152 billion bill. The president signed the measure into law Wednesday afternoon.

The plan gives tax rebates ranging from $300 to $2,000 to qualified households, in hope that the recipients will spend the money in order to jump-start the faltering economy.

I wrote about a less-touted provision in the plan that allows Fannie Mae and the Federal Home Loan Mortgage Corp. (Freddie Mac) — the two government-chartered companies that buy mortgage loans from banks and package them into mortgage-backed securities — to increase their loan size limit from $417,000 to $729,750. While a one-time tax rebate is sure to put some cash into the economy, I pointed out that raising the conforming loan limits would do a lot more.

Rates on jumbo mortgages have not fallen in recent months to the levels of other interest rates, effectively preventing jumbo loan holders from being able to take advantage of lower rates through refinancing. Fixed rates for conforming loan amounts under $417,000 have fallen to the 5.75 to 6 percent range while jumbo rates are still in the low 7 percent range.

As soon as these loan limits are raised, thousands of jumbo loan holders will be able to refinance to a lower rate and save hundreds of dollars per month in interest. This, I contend, will put a lot more money into the overall economy than a one-time rebate.

Yet, as I surf the Internet and read comments on various Web sites and blogs, I see that many people believe that raising the loan limits is a bad idea because it will result in an increase in bad loans.

These folks don’t get it. Raising the conforming loan limits doesn’t mean Fannie and Freddie are going into the easy mortgage money business. It simply means that jumbo mortgage rates will fall in line with other interest rates, which happen to be lower.

Those who oppose raising the Fannie and Freddie limits are mixing up the issues. There are many thousands of homeowners in the Washington metropolitan area alone who carry jumbo loans and also have 20, 30 or 40 percent equity in their property. These homeowners also have excellent credit and good, documentable income. Shouldn’t they be allowed to take advantage of the recent drop in interest rates? Of course they should.

I said it in last week’s column, but it warrants repeating: Raising the conforming loan limit doesn’t mean a repeat of the subprime debacle. It simply allows well-qualified borrowers who happen to hold mortgage balances in excess of $417,000 to take advantage of the recent drop in interest rates. Oh, and doing so will go a long way in helping to jump-start the economy.

Henry Savage is president of PMC Mortgage in Alexandria. Reach him by e-mail (henrysavage@pmcmortgage.com).

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