As many as perhaps a million home buyers will catch a slight interest rate break next year, thanks to one of the largest increases on record in the so-called conforming loan limit.

Beginning Jan. 1, the ceiling on loans that can be purchased or securitized by Fannie Mae and Freddie Mac will jump nearly 16 percent, to $417,000. The current maximum is $359,650.

The ceilings of government-based FHA and VA loans also will rise next year.

The change in the Fannie-Freddie maximum means that buyers and refinancers who would have exceeded the old limit in 2006 will see their loans costs decline by from 0.25 to 0.5 percent, as long as they remain under the new ceiling.

The huge $57,350 increase comes at an opportune time for the housing market. Interest rates have been creeping up of late, and are expected to rise further in the coming months. Ironically, though, the rate of house price appreciation has began slowing in many markets. And in some places, according to the latest figures, prices actually are beginning to recede from record levels.

But despite the slowdown, the new limit still isn't high enough to satisfy California's mortgage brokers, who have been pushing lawmakers in Washington to place the state's most expensive places on a list of high-priced markets where the ceiling is 50 percent higher than it is everywhere else.

"That's a good national number, especially for states that don't have high-cost issues," said Michael Faust, a Roseville broker and chair of the California Association of Mortgage Brokers' government affairs committee. "But California needs more so that borrowers here can have the same access to affordable housing as those in the rest of the country."

Under legislation cleared by the House that would tighten regulation of Fannie Mae and Freddie Mac, the limit on loans in high-cost area that could be touched by the two government-sponsored enterprises would be equal to the median price for areas, up to $540,000.

According to the California Association of Realtors, the median price of existing houses statewide in October was $538,770. But the median is much higher in some regions. It is $601,850 in San Diego, $557,730 in Los Angeles and $719,660, the highest in the state, in San Francisco.

The version of the GSE regulatory bill reported by the Senate Finance Committee has no such provision, and the full Senate isn't expected to take up the measure until earlier next year. Differences between the two bills then must be ironed out by a conference committee.

Borrowers don't have to wait until Jan. 1 to take advantage of the higher ceilings. Some lenders will begin taking applications at the new maximum right away, and a few have been doing so already. Miamisburgh, Ohio-based National City Mortgage has been writing loans for up to $400,000 at the lower conforming rate since August. "Historically we have gone out every summer" at a the higher ceiling, said Chief Executive Officer Paul Bibb.

Bibb said his company's decision to stop at $400,000 was not a guess. "We have a pretty good sense of where the number is going to come in," he said, "and we try to be 5-10 percent below that to give ourselves a little room for error."

Borrowers get a break in rates that are at or below the conforming loan limit because investors worldwide believe the mortgage-backed securities created by Fannie and Freddie are backed by the full faith and credit of the federal government.

That point has long been a bone of contention to some who would like to see the two agencies, which were created years ago to provide liquidity to the mortgage market, stripped of their government connections altogether and forced to compete with totally private secondary market players.

But until that and other issues surrounding the GSEs are decided by Congress, American home buyers continue to reap the rewards -- up to $24,700 over the life of a 30-year fixed mortgage at current rate, according to Freddie Mac.

The higher limit isn't likely to create many new buyers because those who can afford houses in the $360,000-$417,000 price range probably would have proceeded whether their loans are any less expensive or not, according to economists at the Mortgage Bankers Association.

Nevertheless, Fannie Mae estimates that more than 466,000 borrowers will benefit from lower cost financing next year. Freddie Mac says as many as a half-million borrowers will benefit.

Those estimates do not include thousands more households who use government financing to buy a new house or refinance the ones they already are in.

The ceiling on loans insured by the Federal Housing Administration also will rise next years, to about $362,790 (87 percent of the Freddie Mac limit) in about three dozen high cost markets. The current FHA maximum is $312,895.

The FHA "floor" in 2006, or the maximum loan amount in most other places, will be about $200,160.

Because the FHA must determine a limit for each of more than 3,300 jurisdictions nationwide, a formal announcement won't be made until the end of December, at the earliest.

In addition, the maximum no-downpayment loan that will be guaranteed by the Veterans Administration also will be $417,000 in 2006.

Eligible veterans can still purchase higher-priced houses, but because the VA "guaranty" is accepted by some lenders as a substitute for for a 25 percent downpayment, buyers will have to put up $1 of their own money for every $4 they want to borrower above the limit.

The conforming loan limit for '06 also will be higher for two to four-family dwellings: $533,850 for a two-unit structure, $645,300 for three units, and $801,950 for four. For second mortgages, the ceiling will be $208,500.

Neither Fannie Mae, Freddie Mac, the FHA or VA make loans directly to consumers.

Fannie and Freddie, which are quasi-government agencies that guarantee the timely payment of principal and interest to investors, keep the money flowing to housing by purchasing loans from local lenders and packing them into investment-grade securities for sale worldwide.

The FHA insures loans made by private lenders and is considered a last resort for borrowers who don't measure up to Fannie and Freddie's stricter underwriting guidelines. And the VA guarantees to make lenders whole should borrowers default on their loans.

Published: November 30, 2005

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When Lew Sichelman first started writing about housing in 1969, he was the youngest real estate writer in the country. Now, 37 years later, he's one of the oldest -- and most decorated. He has been rated the top housing columnist in the country by the National Association of Realtors as well as by his peers in the National Association of Real Estate Editors. Indeed, NAREE has recognized his work on numerous occasions. One year - due to his advancing age, he can't recall which one - he earned top honors in the annual NAREE Journalism Contest in three out of the four major writing categories. It was the first time one writer has won so many NAREE awards in a single year. Known for his ability to make even the most difficult topics understandable, Sichelman also has been honored by the National Association of Home Builders and the Mortgage Bankers Association. He began providing in-depth coverage of and consumer-oriented information about housing and housing finance at the Washington Daily News, where he was real estate editor. He held that same position for nine more years at the Washington Star, which purchased the News in 1972. The Star, a so-called "writer's newspaper" which also had the misfortune of being an evening paper, was put out of its misery in 1981, and Sichelman, who had begun self-syndicating his column in 1978, decided to become a full-time columnist. Today, his column, "The Housing Scene," is distributed by United Media to newspapers throughout the country. He also is on the staff of National Mortgage News, an independent newspaper which is considered the bible of the mortgage business. And he writes for numerous other publications, including MarketWatch.com, where he answers readers questions once a week, Sports Illustrated (don't ask), RealtyTimes.com, BigBuilder and others. Sichelman is married, the father of five and grandfather of eleven.