For most of the past two years, Fannie Mae and Freddie Mac have offered loans on properties valued as high as $729,500 in high-priced areas. That amount was scheduled to be reduced by approximately $100,000 at the end of this year, but recent legislation will cause the higher limit to remain in effect through the end of 2010. This is good news for future homebuyers looking to purchase high-tier properties.

Loans that conform to Fannie and Freddie’s standards entail lower risk of loss for lenders, and lower interest rates for borrowers – thanks to the government guarantee of all of these loans (which is why the interest rates should be very  close to the 10-year treasury rate). Many borrowers who would have otherwise had to take high-price jumbo loans will continue to be eligible for cheaper financing instead—at least until the government gets out of the market, as it must and will, but not before the government has had its take from lenders.

first tuesday take: California’s lenders will find comfort in the extension of the jumbo loan ceiling. Thanks to Congress’s actions, buyers will find high-priced loans, including the more expensive jumbo loans, easier to come by and at lower-than-market rates. However, a market problem exists: home loan interest rates are not nearly as low as the government guarantee warrants, and interest rates would definitely be lower at the moment if the lending community was as numerous in mortgage bankers, community banks and mortgage loan brokers as it was in the much more competitive and free market of the 1990s.

The recovery is waiting to bring open market (read: non-government) balance to the housing inventory and the financing of home sales so we can all just get on with the business of real estate. In the interim, every little bit of extra support from Fannie and Freddie, now wholly owned subsidiaries of the US government, holding over 2/3^rds of all home mortgages in the US, is welcome. It appears that we citizens, too, owe the politicians some thanks. After all, they somehow understand that the government is the solution, as the absolute lender of last resort when all publicly-owned lending institutions are seen as loaded with toxins or otherwise unwilling to lend.

Re: Loan Ceiling Extended from the New York Times

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