Jumbos are coming back for the home mortgage market!

After a long hiatus, jumbo mortgages will be coming back very shortly. President Bush is expected to sign the Economic Stimulus Act of 2008 on Monday. This legislation temporarily raises the limit on "conforming" mortgages that Fannie Mae and Freddie Mac can securitize and that the FHA can issue by about 25%.

The exact new limit will vary by area, but will be roughly 25% higher than the median price for houses in that area, but not more than 75% higher than the current $417,000 limit ($729,750.) For example, if the median price in an area is currently $600,000, then new limit would be $729,750 ($600,000 plus 25%, but capped at 175% of $417,000.) If the median price in an area is currently $500,000, the conforming limit rises from $417,000 to $625,000 ($500,000 plus 25%.) Yes, this does not cover all jumbo mortgages, but should cover the lion's share and help to sell a lot of houses in the $425,000 to $725,000 range.

Although this new limit is nominally only temporary, for mortages issued up until the end of 2008, the good news is that this change is retroactive to mortgages issued all the way back to July 1, 2007. This means that banks and other financial institutions that had issued jumbo mortgages over the past seven months and are still holding them (bcause the securization market had dried up) can now sell them to Fannie Mae and Freddie Mac for securitization which frees up that capital for new loans and mortgages and other purposes.

Although a lot of cynics grumble that it will take a couple of months to see the stimulus rebate checks, jumbos should have an impact within a very short period of time.

I fully expect that the limit change will become permanent. The only way that would not happen is if the Wall Street jumbo securitization market recovers strongly over the remainder of the year. Even then, there will be pressure on politicians to keep the new limits in place.

-- Jack Krupansky