The government on Wednesday raised the mortgage limits for loans guaranteed by the Federal Housing Administration in 14 high-cost California counties.
The Department of Housing and Urban Development released the new loan limits for California — a hotbed during the housing boom that now is suffering the worst home-price declines in the nation. The limits, with the maximum at $729,750, are derived from median home prices in each county.
HUD is expected to raise the limits in other counties nationwide in the coming days.
The economic stimulus package includes a temporary increase in the limit on FHA-backed loans, from $362,790 to as high as $729,750 in expensive areas, to let more homeowners with high-rate subprime mortgages refinance into federally insured loans.
The package also includes a temporary increase in the cap on mortgages that the government-sponsored mortgage companies Fannie Mae and Freddie Mac can buy or guarantee from $417,000 to $729,750.
The idea is to stoke investor demand for securities made up of more expensive mortgages — so-called jumbo loans — backed by Fannie and Freddie, the two biggest mortgage financers in the country. That would drive interest rates lower and spur home buying and refinancing.
Roughly half of all jumbo mortgages are in California, according to federal regulators.
California Gov. Arnold Schwarzenegger said the new limits will “help California’s housing market rebound.”
“No other state has been more impacted by the ongoing mortgage crisis than California, and the announcement today ... will help more working Californians achieve the American dream of homeownership through less expensive and more secure loans,” he said in a statement.
Schwarzenegger has pressed Congress to make the increased limits — which expire at year’s end — permanent.
The Federal Housing Administration, a Depression-era agency within HUD, insures mortgages for low- and middle-income borrowers.
Counties that get the $729,750 maximum for FHA loans are likely to get that same level for Fannie and Freddie mortgages, experts said. HUD is expected to designate new Freddie and Fannie limits for other parts of the country too.
In California, the counties at the maximum level for FHA loans are Alameda, Contra Costa, Los Angeles, Marin, Monterey, Napa, Orange, San Benito, San Francisco, San Mateo, Santa Barbara, Santa Clara, Santa Cruz and Ventura. At the other end, Lassen, Modoc and Trinity counties are subject to a loan cap of $271,050 — a standard amount in an area with normal home prices.
HUD Secretary Alphonso Jackson said Wednesday the new limits will make FHA-backed loans available to as many as 30,000 Californians and 250,000 homeowners nationwide.
The new limits “will allow for greater economic stability for our communities,” Jackson said in a speech in Los Angeles. A text of his remarks was distributed by HUD.
“We confront an emergency, a crisis,” Jackson said. “Los Angeles has been hard hit.”
He noted that home foreclosures in southern California soared 433 percent in January from a year earlier.
The number of U.S. homes facing foreclosure rose 57 percent in January.