Friday, January 25, 2008

Stimulus Package Contains a Huge Windfall For Homeowners

By Stephen Buel
Fri, Jan 25, 2008 at 10:57 AM

Bay Area howeowners with mortgages in excess of $417,000 could save thousands of dollars per year under the economic stimulus package unveiled Thursday in Washington. By enabling mortgages of up to $729,750 to be guaranteed by the two federal agencies that repurchase home loans, the stimulus package would bring down rates on new jumbo mortgages by 1 percent or more, industry watchers say. That is expected to lead to a wave of refinancing in high-cost areas of the country such as the Bay Area.

Even before the beginning of the recent mortgage-lending crunch, these so-called jumbo mortgages were costing about one half percent more than "conforming" mortgages. "Right now, there is a huge discrepancy between jumbo rates and conforming rates, primarily because banks and investors are skittish about taking on the risk of holding mortgages because of the subprime mess," said John Gillespie, president of Menlo Park's Alpine Mortgage. "Usually jumbo loans are more expensive, but not to this extent."

Translated into economic terms, a $650,000 mortgage currently costs about $440 per month more than it would if jumbo loans were treated similarly with loans of less than $417,000. Even people whose jumbo loans were initiated before the subprime mess are paying about one half percent more in interest than they otherwise would have paid had their loans been treated similarly, Gillespie said.

Consequently, he predicts that the proposal, which has bipartisan backing and the support of the president, will unleash a flurry of refinancing in high cost regions of the country if passed as expected. "If it goes to $700,000 that's just huge," Gillespie said.

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