AT HIGH NOON TODAY CHAIRMAN BARNEY FRANK OF THE HOUSE FINANCIAL SERVICES COMMITTEE ANNOUNCED THAT AN AGREEMENT HAD BEEN REACHED AMONG CONGRESSIONAL LEADERS TO ALLOW AN INCREASE IN THE LIMIT OF HOME MORTGAGE PURCHASES BY FANNIE MAE AND FREDDIE MAC FROM $417,000 TO AS HIGH AS $700,000. THAT WAS A BLOCKBUSTER ANNOUNCEMENT, BUT FOR SOME REASON THE NATIONAL FINANCIAL TV NETWORKS CHOSE TO IGNORE IT AND FOCUS INSTEAD ON AN AGREEMENT TO INCLUDE LOW-EARNING TAXPAYERS TO RECEIVE $300 CHECKS FROM WASHINGTON.

REP. FRANK’S ANNOUNCEMENT ACTUALLY WENT ABOVE AND BEYOND A SUGGESTION BY THE NATIONAL ASSOCIATION OF REALTORS. TWO DAYS AGO THEY ISSUED A POWERFUL ENDORSEMENT OF THE FEDERAL RESERVE’S RATE CUT WHEN IT HAPPENED. AND YESTERDAY THE NAR ALSO OFFERED A STRONG PUSH FOR ANOTHER IDEA WHOSE TIME HAS COME – THE LIFTING ON THE CAP OF MORTGAGES THAT CAN BE INSURED BY FANNIE MAE AND FREDDIE MAC.

RIGHT NOW THESE GIANT GOVERNMENT-SPONSORED CORPORATIONS ARE ONLY ABLE TO PURCHASE MORTGAGES UP TO $417,000. BUT AS THE NAR POINTS OUT, IN STATES SUCH AS CALIFORNIA $417,000 IS AN IMPRACTICAL CAP BECAUSE SO MANY HOMES ARE PRICED FROM $500,000 TO $750,000. BEFORE THE CREDIT CRUNCH HIT, MANY BUYERS OF SUCH UPSCALE HOMES WERE FORCED INTO SUBPRIME MORTGAGES, AND THAT IS NOW BRINGING PRESSURE ON THESE BUYERS AS INTEREST RATES ARE RAISED FOR THEM EVEN AS RATES ARE FALLING FOR MOST NEW HOMEBUYERS.

THE NAR ASKED THE ADMINISTRATION AND THE CONGRESS TO JOIN TOGETHER AS PART OF THEIR ECONOMIC STIMULUS EFFORT TO AUTHORIZE AT LEAST A $625,000 LIMIT FOR FANNIE MAE AND FREDDIE MAC. THAT MADE SO MUCH SENSE THAT WE WERE OPTIMISTIC SOMETHING CLOSE TO THAT LEVEL (OR EVEN HIGHER) WOULD COME OUT OF URGENT DISCUSSIONS ALREADY TAKING PLACE IN WASHINGTON. AND NOW, WITH REP. FRANK’S ANNOUNCEMENT, IT APPEARS CONGRESS IS READY TO ACTUALLY EXCEED THE NAR REQUEST.

THE NAR – IN A LETTER TO CONGRESSIONAL LEADERS - SAID THAT LIFTING THE ALLOWABLE LEVEL OF MORTGAGE PURCHASES TO $625,000 OR MORE WOULD “NOT ONLY IMPROVE LIQUIDITY IN THE MORTGAGE MARKETPLACE BUT ALSO BOOST HOMEBUYERS’ CONFIDENCE LEVELS, RESULTING IN INCREASED HOME SALES AND ECONOMIC ACTIVITY.” WELL, A $700,000 LIMIT WOULD HELP EVEN MORE!

NAR President Dick Gaylord says that such a higher loan limit will lower interest payments for consumers who get the new “GSE Jumbo Loans,” reduce the supply of homes on the market, strengthen home prices by two percentage points and increase economic activity by $42 billion.” The NAR in a supplemental report says that such a lifting of the loan cap “could help reduce foreclosures by 140,000 to 210,000 and result in an additional 348,000 home sales.” The beauty of such a stimulus package, they note, is that “it will immediately impact the marketplace without any new complex Federal programs or tax dollars… and yet it could stabilize the housing market and protect homeowners.” There is an element involved with this lifting of the Fannie Mae and Freddie Mac cap that seems to be lost on the media, so we will spell it out for you here.

Just this morning, the NAR released its monthly data on existing single-family home sales. For the year 2007 as a whole, the median price for a single-family home fell 1.8% to $217,000. Lawrence Yun, the Realtors’ chief economist, noted that this was the first annual price decline for housing going back to the Great Depression of the 1930’s. But I see that as a misleading, even FALSE figure. The problem is that homes valued over $450,000 are frozen and can only be sold to rich buyers who can pay cash or at least a giant cash down payment. That means that in much of California and in chunks of the New York market and Florida, for example, the sales figures must of necessity reflect the near-total lack of buyers for big, high-priced homes.

When you remove these upscale homes from the total sales base you will of course automatically get a decline in both the average and the median price of homes bought and sold. In recent years such sales have been financed by subprime mortgages, which have now all but disappeared from the market. With the cap raised to $625,000 or more, the upper part of the market will open up and explode in activity. Statistics will record a big, fast and FALSE jump in median prices. Now you know the whole story.

source