01/16/08 Economic Stimilus Package Update

Here is a recap of the “Stimulus package” that our government has been working on…
Once this is passed, it will generate hundreds of thousands of home sales. This is much needed and wonderful news.



Congress, President Agree to Loan Limit Hike in Stimulus Package stimulus

California will see federally guaranteed mortgages as high as $730,000 if pending emergency legislation, now awaiting action in the U.S. Senate, is approved. Late last week Congress and President Bush reached agreement on the contents of a so-called "economic stimulus" package, which after several days of lobbying and negotiation, now includes an increase in the limits placed on federally guaranteed loans, which should help revive California's slumping housing markets.

The limit on what are referred to as "conforming" loans is set by the federal government and serves as the cap under which "government sponsored enterprises" (GSEs) such as Fannie Mae and Freddie Mac may purchase mortgage loans and turn them into marketable "securities" which private investors buy.

GSEs were established by the federal government over 70 years ago to keep mortgage credit markets "liquid" and help deliver lower interest rates to homebuyers. But the limit now as well as those set over the past several decades are far too low to provide at least half of California homebuyers the lower-financing-cost benefits this Depression-era program intended. CBIA has long complained that these limits don't work in California and force homebuyers in the state to finance their purchases using "jumbo" loans which carry higher interest rates.

It's estimated that over the life of a 30-year jumbo loan a California homebuyer spends $150,000 more in financing costs on the purchase of a median-priced home. If the current agreement between the White House and Congress is enacted - something that's expected to happen in the next two weeks - high-cost markets around the country - and most of those in California - will see conforming loans go from the current $419,000 to $730,000. CBIA was joined in its advocacy for including the conforming loan limit change in the stimulus package by NAHB, the California Association of Realtors and their national association, the California Mortgage Bankers Association and by Governor Schwarzenegger. Indeed, the Governor sent a letter to congressional leaders last week, saying "No issue is of greater importance to California's economy than raising credit for our housing market."

Most economists lauded the proposed changed, confirming that it will give a much-needed shot in the arm to the nation's sagging real estate sector. The National Association of Realtors estimated that a sizeable increase in the loan limit like the one now being pushed in Washington will generate hundreds of thousands of additional home sales nationwide and produce over $40 billion in economic activity.

So, in a nutshell… The activity that this legislation will generate, is going to pump some life back into the market which will also (hopefully) get the majority of consumers “off the fence” and it will create huge oppurtunities for consumers to buy more home for less money and ease higher payments for people that are currently in Jumbo financing.


Final Thought…

"The secret of success in life is for a man to be ready for his opportunity when it comes."

Benjamin Disraeli (1804-1881)British statesman and prime minister