Posted on: Thursday, November 29, 2001

Mortgage lenders raise limit on housing loans

By Jonas Bergman
Bloomberg News Service

WASHINGTON — Fannie Mae and Freddie Mac raised the limit on the size of single-family home mortgages they buy from banks by 9.3 percent to $300,700 — and to $451,050 for homeowners in Hawai'i — opening up lower-cost home financing to more people.

The new loan ceilings are in line with the increase in the average home price for the 12 months ended in October, as measured by the Federal Housing Finance Board. Fannie Mae's and Freddie Mac's government charters require them to base the loan maximum on the federal housing index.

The companies provide money to U.S. housing by buying loans from banks and other lenders, enabling those banks to make more loans. Mortgages that are funded by Fannie Mae and Freddie Mac typically have a rate about 0.3 percentage points lower than other loans. Freddie Mac estimates an additional 250,000 families will be eligible for the lower-cost loans when the limit goes into effect on Jan. 1.

"It will make homes more affordable, especially for first-time homebuyers," said David Lereah, chief economist for the National Association of Realtors.

Based on today's mortgage rates, a borrower with a $300,000 loan would save more than $700 a year in interest payments with a Fannie Mae or Freddie Mac loan compared to a loan not funded by the companies. That amounts to $21,890 less in the interest costs over the life of a 30-year loan.

Fannie Mae and Freddie Mac are able to provide a lower cost largely because their government affiliation allows them to borrow at a lower rate in the capital markets than other finance companies. They sell large amounts of bonds and other debt securities and use the proceeds to finance their purchases of home mortgages.

The maximum amount for one- to four-family mortgages in Hawai'i is 50 percent higher than the rest of the country. The loan limit for second mortgages will increase to $225,525 in Hawai'i.