Congress' fight over jumbo loans isn't over

House on pile of money

House Republicans squared off against the Senate last week in a fight over how much you should be able to borrow when your home loan is bought or backed by the federal government.

The result could end up costing -- or saving -- you money when you buy or sell your home, or refinance your mortgage.

At issue is a Senate-approved bill that would boost the strict limits Congress let fall in October on the size of loans two government-owned companies can buy and the Federal Housing Administration can guarantee. (These three groups currently back more than 90% of home loans.)

The reduced limits were felt in some 600 counties in 42 states, according to estimates.

That means that in some expensive real estate markets, if you buy a home for more than $625,500 -- down from a maximum of $729,750 -- you can no longer purchase a typical fixed-rate mortgage.

Instead, you'll need a more-expensive jumbo loan.

Left unchanged were the limits in the most affordable housing markets.

In most areas, $271,050 is the limit for FHA loans and $417,000 is the maximum for the two government-owned companies, Fannie Mae and Freddie Mac.

After the mortgage crisis struck in 2007, the sales of houses and condos priced between $500,000 and $1 million plunged even more than lower-cost homes because jumbo loans became so costly and difficult to obtain.

In some cities, that only affected the luxury housing market. But it was a huge problem in places like California, where it became impossible to finance even an average home through Freddie and Fannie.

Congress temporarily upped the limits in 2008 and extended the bump each year until now.

But the Senate passed a bill last week putting those limits back to their pre-October levels, so you could get an FHA-, Fannie- or Freddie-backed mortgage of $729,750 in the highest-cost areas.

The House of Representatives hasn’t agreed to the change.

If you’re trying to buy or sell a home, the issue is important to you.

Buyers: If you purchase a home with a mortgage that’s higher than the loan limits, you must get a jumbo loan. You’ll have to put down more money, pay a higher interest rate (jumbo loans cost on average about half of a percentage point more than fixed-rate conforming loans) and meet different rules than when you get a government-sponsored loan.

Sellers: If you price your home above the loan limits, the pool of buyers could shrink because buyers prefer to use less-expensive government-guaranteed loans and jumbo loans can be harder to qualify for.

House Republications want to keep the current lower loan limits because it reduces government involvement in the housing market -- although House Republicans from areas where homes are expensive (California, New York) favor higher loan limits because their constituents want to be able to use Fannie, Freddie and FHA loan programs.

Earlier this month, 131 members of Congress sent a letter to the House speaker and the majority leader asking them to help reinstate the limits.

The real estate, credit union, mortgage banking and home-building industry associations, along with the National League of Cities and the U.S. Conference of Mayors, support the higher limits. The retail bank and private mortgage insurance associations (private mortgage insurers compete for business with Fannie, Freddie and FHA) oppose higher loan limits.

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