Cleaning & Restoration Breaking News

Fannie, Freddie Loan Cap to Rise in 2005

WASHINGTON (Reuters) - Federal regulators on Tuesday allowed U.S. mortgage finance giants Fannie Mae and Freddie Mac to buy larger individual mortgages next year following a jump in home prices, a move that would lower borrowing costs for buyers of more expensive homes.

The cap on a mortgage the two government-sponsored enterprises can buy was raised to $359,650 from $333,700 following a report that the average U.S. single-family home price surged in October by 8.5 percent to $264,540 from $243,756 in the same month a year ago. Low mortgage rates fueled record home sales and strong house price appreciation in most regions of the country, according to a Federal Housing Finance Board survey.

Fannie Mae and Freddie Mac are permitted to adjust their loan purchase caps once a year by the 12 month rate of change in the October average U.S. house price. The companies buy mortgages from lenders and repackage them as securities for investors or hold them in their own portfolios.

Lenders consider loans they know they can sell to Fannie Mae and Freddie Mac less risky. As a result, home buyers who borrow amounts under the enterprises' purchase ceiling, known as the conforming loan limit, can get mortgages with interest rates about a half-percentage point lower than for bigger loans, referred to as jumbo mortgages.

Buyers typically stretch the size of their downpayment or take out a second loan to come in under the conforming loan cap.

Assuming a 20 percent down payment, buyers of single-family homes costing up to $449,562 would qualify for the lower-cost loans.

Because Fannie Mae and Freddie Mac erred in calculating the 2004 limit, the change for 2005 was calculated from $331,400, regulators said.

The enterprises' loan purchase limits for areas considered high-cost -- Alaska, Guam, Hawaii, and the U.S. Virgin Islands -- rises to $539,475, the companies' regulator, the Office of Federal Housing Enterprise Oversight, said in a statement.

For two-unit mortgages, the limit climbs to $460,400 and for three-unit mortgages, the cap jumps to $556,500, the regulator said.

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