2 February 2008 - Over the past few weeks, information about housing and mortgages has consistently appeared on the news. In fact, just on Tuesday, the U.S. House of Representatives passed an economic stimulus package that would not only create taxpayer rebates to boost consumer spending, but would also increase access to certain types of mortgages.

The first mortgage-related provision of the economic stimulus package aims to increase the availability of conventional loans. These types of mortgages, also known as conforming loans, are generally made to buyers who have good credit histories, low debt-to-income ratios and solid financial documentation. Because these loans must meet a number of criteria, they can be sold to mortgage giants Fannie Mae and Freddie Mac. This ultimately means the loan is less expensive than other types of mortgage products.

In fact, over the past few weeks, interest rates on conventional mortgages have been at historic lows. On Jan. 24, Freddie Mac reported that rates on 30-year fixed-rate mortgages were at their lowest level in four years.

One of the requirements for a conventional mortgage is that the loan cannot exceed $417,000, the conforming loan limit. Mortgages above this amount are called jumbo loans. Because they are harder to sell, they have higher interest rates and are harder to come by. Although conventional financing was readily available during the credit crunch over the summer, rates on jumbo loans soared as investors backed away from these products.

Even though investor confidence in jumbo loans is returning, the rates are still higher than usual. Lawrence Yun, chief economist for the National Association of Realtors, says if conforming mortgages were averaging about 6 percent, then rates on jumbo loans would historically be about 6.2 percent or 6.3 percent. In the current mortgage environment, jumbo loan rates are closer to 7 percent, Yun says.

This has created a difficult situation in high-cost areas because many buyers need mortgages for more than $417,000. Because of the high prices, borrowers who would have otherwise qualified for a conforming loan are forced to purchase a much more expensive jumbo loan in order to obtain a mortgage.

On Tuesday, Congress sought to help alleviate that problem by raising this cap and allowing Fannie Mae and Freddie Mac to purchase loans of up to $729,750 in some high-cost areas. The amount of the limit would be calculated depending on the area's median price, and the measure would expire at the end of the year. This provision would enable more households to enter the housing market using a more affordable conventional mortgage.

Jumbo loans weren't the only mortgages that faced challenges over the summer. The second mortgage-related provision of the stimulus package would help buyers with subprime mortgages. Since August 2007, the subprime loan market has nearly dried up, creating challenges for buyers with less-than-perfect credit.

Traditionally, buyers who couldn't meet conventional underwriting standards turned to loans insured by the Federal Housing Administration. In recent years, however, many would-be FHA borrowers turned to subprime mortgages because qualifying was so easy.

Now that subprime lending is basically gone, borrowers are turning back to the safer FHA program and others are refinancing out of subprime mortgages into more sustainable FHA loans.

On Tuesday, the U.S. House aimed to increase the availability of this program, much as it did for conventional loans, by increasing the FHA loan limits nationwide. The stimulus package would raise the floor to $271,050 and the limit to 125 percent of local median home prices. The National Association of Realtors predicts this change will help 138,000 Americans purchase homes and 200,000 families refinance out of risky adjustable-rate subprime loans.

As of press time, the U.S. Senate had not passed an economic stimulus package so it is uncertain whether the reforms discussed above will become law. Regardless of what happens, there are still a number of affordable mortgage options available for potential buyers. To get the facts about housing in your area, contact a local Realtor or visit UtahHousingFacts.com.