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Fannie, Freddie Raise Loan Limits

Pool of Low-Cost Mortgages to Expand

By Kathleen M. Howley
Bloomberg News
Wednesday, December 1, 2004; Page E03

Fannie Mae and Freddie Mac will raise by 7.8 percent the limit on the size of single-family-home mortgages they will purchase, increasing the pool of home buyers who will qualify for lower-cost financing.

The loan ceiling will be $359,650 in 2005, up from $333,700 this year, the Office of Federal Housing Enterprise Oversight said in a statement. The government requires the federally chartered mortgage financiers to base annual increases for their maximum loan size on the percentage gain of average home prices in October from a year earlier.

The ceiling on single-family-home loans will be $359,650 in 2005, up from $333,700 this year, the Office of Federal Housing Enterprise Oversight said. (Gary Tramontina -- Bloomberg News)

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The increase will help the real estate market as it enters a year that probably will have the first decline in sales since 1999, said David Lereah, chief economist of the National Association of Realtors.

"Raising the loan limit makes homes more affordable in the middle segment of the market," Lereah said. "It will bring people into the buying market who might not otherwise be there."

He predicted that sales of existing homes are likely to fall 3.7 percent, to 6.3 million in 2005 from a record 6.55 million this year.

Home buyers who qualify for "conforming loans," or those that Fannie Mae and Freddie Mac will buy to repackage as mortgage-backed securities, typically pay as much as a half a percentage point less for interest when compared with "jumbo loans" that are above the limit, Lereah said.

On a $340,000 mortgage, that difference would result in a monthly savings of about $111, when computed at a 6 percent rate versus 6.5 percent. Over the life of a 30-year loan, the savings would be about $39,800.

Fannie Mae and Freddie Mac can provide lower-cost loans largely because their government affiliation allows them to borrow at a lower rate than other companies. They were chartered by Congress to provide greater liquidity to the mortgage market to expand homeownership.

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