A trio of powerful senators introduced a bill this week that would extend a major government subsidy for the ailing real estate market. If passed, the law would allow taxpayer-owned mortgage companies to continue buying jumbo mortgages, worth up to $729,750.
If the bill, or one like it, fails to pass before the end of the Congressional session in September, the law would revert back to its old, lower limit. That could further damage the market for new and exiting homes, the senators warned.
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“Allowing existing loan limits to expire during this difficult economic time would make a struggling housing market even weaker,” Johnny Isakson (R-GA) said in a press release. “I am also concerned that failing to extend these limits will make it even more difficult for the average homebuyer get a mortgage and buy a home when credit is already tight.”
At issue is the definition of “conforming” mortgages, which are loans that can be bought from lenders by Fannie Mae, Freddie Mac, the Veterans Administration and the Federal Housing Administration. Under the regular rules, the government cannot buy any loan worth more than $625,000.
In February 2008, President Bush signed the Housing and Economic Recovery Act, which increased the maximum limit to $729, 750 in areas with the most expensive housing. The measure was supposed to be temporary. But if the bill introduced by Senators Robert Menendez (D-NJ), Johnny Isakson (R-GA) and Barbara Boxer (D – CA) passes, that “temporary” rule won’t expire until 2013.
The cap is supposed to make sure that taxpayers are not subsidizing wealthy homeowners. But in some parts of the country, bringing back the old limits could hurt regular consumers, the senators argue.
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The effects could be terrible,” Menendez said in a press release. “New Jersey has some of the highest home prices in the nation and allowing these limits to lapse would hurt middle class homeowners and prospective buyers.”
The measure appears to have broad support in Washington. In addition to the bipartisan sponsorship, an increasingly rare occurrence in the current Congress, the Obama administration published a white paper in February that called for the subsidy for jumbo loans to be extended.
Image: Sam Bowman, Flickr.com