New Ceiling

Buyers in high-priced markets get a hand

The Boston Globe
March 8, 2008 Saturday
THIRD EDITION

BYLINE: Kimberly Blanton Globe Staff
SECTION: BUSINESS; Pg. F1

The federal government yesterday increased the limit for government-backed mortgages, a move that could make home loans cheaper for several thousand Boston-area borrowers.

The limit increased to $523,750 for mortgages in the Boston metropolitan area that would qualify for government backing from Freddie Mac and Fannie Mae, which purchase the loans in the secondary market. The previous limit was $417,000.

Mortgages above the Freddie and Fannie ceiling are jumbo loans, and carry a higher interest rate. During the credit crisis last year, rates on jumbo loans surged to more than a percentage point above so-called conforming loans, or those under the federal loan limit.

Congress adopted a temporary increase in the loan ceiling in the economic stimulus package passed last month, in an attempt to energize the moribund housing market. Higher limits would make it cheaper for more borrowers in high-price housing markets such as Boston to buy a home or refinance an existing mortgage. The limits apply to mortgages originated between July 1, 2007 and the end of 2008.

"A great thing has happened," said Sushil Tuli, president of Leader Bank in Arlington. "It should help people become homeowners, because the payments will be lower with the lower interest rate."

Loans that fall between the old loan ceiling and the new ceiling will likely still carry higher interest rates than traditional conforming mortgages, because of the way Fannie Mae and Freddie Mac will be forced to handle them. Tuli said he and other bankers are still examining the new limits, but he estimated the interest rate for a 30-year, fixed-rate mortgage under the new limit would be about 6.125 percent, versus jumbo rates of 6.75 percent or higher.

If the limits had been in effect last year, about 4,000 additional refinance loans and 1,600 additional home-purchase loans in Greater Boston would have been categorized as conforming and eligible for federal support, according to Warren Group, a Boston property research firm. About 14,500 jumbo purchase and refinance loans were made in the metropolitan area in 2007.

"In more expensive housing markets like Boston, where there are more expensive homes and large mortgage requirements, the raising of the conforming ceiling is going to have a bigger impact than it is in less expensive housing markets," said Alan Pasnik, Warren Group's analyst.

The $523,750 limit will apply to single-family mortgages in the Boston area, which includes Essex, Middlesex, Norfolk, Plymouth, and Suffolk counties. Elsewhere in Massachusetts, the federal government said the new loan limits were $462,500 for the Barnstable area; $475,000 for the New Bedford and Providence area; and $729,750 for Nantucket and Martha's Vineyard.

Stephen Cochran, a loan officer for Poli Mortgage Group in Norwood, said people have been inquiring in recent weeks about the change. "It's creating a lot of excitement out there," he said.