Jumbo mortgages have new limits coming this fall

The Washington Post reported that on October 1, 2011, the government will lower the size of home loans it guarantees.

The cap on government-backed loans will drop from $729,750 to $625,500 in the highest-priced markets, while the less expensive markets will fall to $417,000 for mortgages purchased by Freddie Mac and Fannie Mae and $271,050 for loans backed by the Federal Housing Authority, according to MSN.

The Post argued that the lowered loan limits can prevent buyers from entering pricey neighborhoods, create more difficulty in selling expensive homes and no longer make refinancing a good option some homeowners. The current loan limits were implemented in 2008 when investors stopped buying jumbo loans for loans guaranteed by the government.

But Congress and the Obama administration support the lowering rates in October in an effort to scale back the government's role in the financial system and lure private lenders back into the market. David Stersn, the president of the Mortgage Bankers Association, told the paper that the housing market has taken more blows than anticipated, making the loan limit expiration ill-timed.

The administration also recently announced changes to the Federal Housing Administration's Special Forbearance Program, which provides assistance to unemployed homeowners. Under the changes, servicers must extend the forbearance period for unemployed homeowners to 12 months and the unemployment program will become available to borrowers who are seriously delinquent as well.  

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