The package proposes raising the conforming loan limit (the largest loan amount eligible for Fannie/Freddie purchase) by as much as 75 percent in some markets. The current jumbo-conforming spreads in Washington are here.
A person with a $500,000 mortgage would find an extra $4,000-$5,000 in her pocket before tax if she could refinance out of a recent jumbo into a conforming mortgage. This is much larger than the proposed tax rebate, and would also be permanent. The downside for consumption is that investors in jumbo loans would see their investment incomes fall, but still...
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Great, now taxpayers in less restrictively zoned areas will have to subsidize the absurd prices in highly zoned areas. 700k for a dilapidated 2 bedroom cottage with little land. This type of loan didn't make much sense before the GSE subsidy, and won't make any more sense after it.
GSE taxpayer bailouts are in the future. GSEs were already losing billions, even before being forced to subsidize such absurd valuations. Not to mention the tremendous debt burden placed on home buyers.
Better to just get rid of the non safety zoning regs, so youngsters can build homes they can afford. Then they will keep the economy going by furnishing their new nests, instead of having every last dime go toward the mortgage.
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