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Markets Not Crazy On Stimulus, But Like Raising Loan Limit

While the Street is somewhat disappointed with the details of the stimulus package (most feel that $300 per person is not going to make a big difference), there is agreement that raising the conforming loan limit for mortgages that Fannie Mae and Freddie Mac can buy to $625,000 from $417,000 is an important development.

Why? I just got off the phone with a mortgage lender in Philadelphia; he believes this could lead to a refinancing boom and he is already contacting clients to make them aware of the coming changes.

Here's the stats: right now the rate for a 30-year $600,000 mortgage is 6.625 percent. That is $3,841 a month. But if the law is changed, that cost will come down, because the rate for a loan at the current conforming limit (now $417,000) is 5.625 percent a month, a full percentage point below that of the nonconforming loan.

At 5.625 percent a month, that $600,000 mortgage drops to $3,453 a month, a savings of $388 A MONTH.

That is significant. Significant enough to make the difference between affording and not affording a home to some, particularly those in high cost areas; and significant enough to get mortgage bankers to call their clients.