On September 29, the U.S. Congress voted to extend higher loan limits for government-backed mortgages in the U.S. Virgin Islands and other high cost areas, a move that should help keep borrowing costs low and support the housing sector.
At the height of the financial crisis in 2008, the government raised the ceiling on the size of loans Fannie Mae and Freddie Mac could buy. At the time, the private market for so-called jumbo loans had all but dried up.
The legislation approved by the House of Representatives and Senate, which President Barack Obama is expected to sign into law, would keep in place until September 30, 2011 the higher $729,750 ceiling for single-family home mortgages in high cost areas such as the U.S. Virgin Islands.
The cap was scheduled to return to $625,500 at the start of 2011. The move to extend the higher limit will effectively keep interest rates super-low for home buyers. Analysts had warned that the housing market could have taken a fresh hit had Congress let the limits reset.
The loan limits measure, which was inserted into a larger government funding bill, also includes an extension of the caps for loans backed by the Federal Housing Administration. Fannie Mae, Freddie Mac and the FHA are the main government support pillars for the battered housing market.
New mortgage originations directly or indirectly backed by the government represented about 82 percent of the market in the three months through June, the most recent figures available, according to industry publication Inside Mortgage Finance. Without an extension of the higher loan limits, many borrowers would have a harder time refinancing homes and obtaining financing for new home purchases.