Here is some good news for a change as reported in today's Boston Globe.

Government raises maximum in Boston area to $523,750

Globe Staff / March 7, 2008

The federal government gave a boost to the local housing market yesterday, announcing it would let people borrow up to $523,750 at low interest rates to buy a home in the Boston area or to refinance an existing loan.

Mortgage companies will make the loans. The government will promise to pay if the borrower doesn't. The borrower pays a small insurance premium and gets an interest rate almost as low as the best-qualified borrowers.

The loans are not restricted to lower-income applicants. The 3 percent minimum down payment can be provided by the seller. Small credit problems? No problem. The government wants money to start flowing again. It hopes to help some people buy homes and to help others escape foreclosure by refinancing.

"This is the only positive thing that's happening right now," said Brian Koss, an executive at Mortgage Network in Danvers. "There are definitely people who are going to qualify for these programs who were shut out."

The move came on a day of otherwise bleak housing news. The Mortgage Bankers Association reported that 0.83 percent of outstanding loans entered foreclosure between October and December, the highest rate during any three-month period since the trade group started counting. The previous record was set between July and September.

The Federal Reserve reported that more than half of the total value of all American homes is now mortgaged, the first time that's happened since it started tracking home equity in 1945. That is a result of falling home values.

And the National Association of Realtors said pending home sales were at the second-lowest level since 2001.

Yesterday's action was not a direct response. It was approved by Congress as part of the economic stimulus package passed in January.

The government has guaranteed some mortgage loans since the Great Depression. But for the last few decades, the program focused on loans to low-income families. Before yesterday, the government would guarantee no more than $362,790 in the Boston area.

The guarantee program, known as the Federal Housing Administration, also was eclipsed by subprime lenders who let people borrow more money more easily - albeit at higher interest rates.

The share of mortgage loans guaranteed by the FHA nationwide fell from 19 percent in 1996 to 6 percent in 2005.

As of yesterday, lending limits were raised to 125 percent of an area's median price, up to a maximum of $729,750.

The maximums for loans on multifamily properties also were raised, at the behest of US Representative Michael Capuano. "This puts the FHA back in the business of making housing loans in our area," Capuano, who represents the Eighth District including Boston, Chelsea, Cambridge, and Somerville, said in a statement.

The new maximum single-family loan amount is $523,750 in Suffolk and four surrounding counties: Essex, Middlesex, Norfolk, and Plymouth. Lower limits apply in the rest of the state, save Nantucket and Dukes counties, where the maximum $729,750 now applies.

The new limits are higher than the median home price in all but a handful of Massachusetts cities and towns, primarily in Boston's western suburbs.

The new limits will allow more people to buy homes.

But they may not substantially increase the number of people who can refinance into FHA loans.

Research by the Federal Reserve Bank of Boston shows 90 percent of subprime loans already were small enough for the FHA to refinance. But only 16 percent met other requirements. The most common problem is that borrowers owe more than the value of their home.

Eric Rosengren, the president and chief executive of the Boston Fed, said yesterday that the FHA and mortgage companies could work together to help these "underwater" borrowers.

Rosengren sketched a model where lenders would forgive debt in excess of the home's value, and the FHA would then refinance the loan. If the home eventually sold at a price above the refinanced value, the mortgage company and the FHA would share in the proceeds. The idea is to encourage lenders to reduce debts by promising they can recoup some of their losses if home prices recover.

The government also plans to lower interest rates on many non-FHA loans by similarly increasing the size of loans that can be purchased by a pair of government-chartered corporations, Fannie Mae and Freddie Mac.