January 30, 2008

Does This Loan Make Me Look Fat?

So-called “jumbo” loans are getting a makeover in congress, part of the economic stimulus plan that lawmakers hope will get their party elected in November stave off a recession.

Remember the $300 check that changed your life when you received it in 2001? Well, depending on who wins the argument, you could get $600 this year!

Far more stimulating is the increase in the federally backed loan limits. If coupled with low interest rates, that could actually boost the housing market. Currently, any loan over $417,000 is considered non-conforming, or jumbo. This means the interest rate is higher, and after this past year’s foreclosures took their toll, so is the bar to get one.

Scroll down on this page for a chart detailing the proposed ceilings in all the regions affected. The rate varies from region to region, as the new maximum would be 125% of the median home price in the area, up to $729,750. The only regions in the country to get to the limit are all in California, and include Silicon Valley, Los Angeles, and San Francisco. The Seattle area is the second lowest on the list at $493,400.

Should we stimulate the economy — which, we will remember, was damaged in part by overzealous lending, generous appraisals, flip hype, and shady deals — by lending people even more money? Reduced to that bare idea, it’s ludicrous. Or maybe it’s more complicated than that. Please, tell me it’s more complicated than that.