Help May Be On The Way - Increase for Conforming Loans

If you are one of many people (especially in our area) that are thinking of buying or if you are one of the owners with a jumbo mortgage that would like to refinance, but jumbo rates are still too high, help may just be on the way.

The following information was just received from a lender we work with quite often (I'll explain in more simple terms following his statement:

"As part of the economic stimulus package, an increase in the conforming limit could now be a reality, at least for a brief period. Congress and President Bush agreed, but have not voted yet, on a 1-yr increase in the conforming loan limit to $730K. There is not a lot of detail yet (there is confusion as to whether the $730K, or $725, is for high cost housing areas, or everywhere, and just what high cost areas are?). Just when mortgage originators everywhere were breaking out the Cold Duck, OFHEO’s director James Lockhart (Office of Federal Housing Enterprise Oversight, who oversees FNMA & FHLMC) issued a statement saying “We are very disappointed in the proposal to increase the conforming loan limit as we believe it is a mistake to do so in the absence of comprehensive GSE regulatory reform. To restore confidence in the markets we must ensure that the GSEs’ regulator has all the necessary safety and soundness tools. Yesterday Chairman Dodd talked about moving a GSE reform bill early this year. We are ready to work with him and the Senate Banking Committee. We will also be working with Fannie Mae and Freddie Mac to ensure that any increase in the conforming loan limit moves through their rigorous new product approval process quickly and has appropriate risk management policies and capital in place.”

Now what? Frankly, analysts feel that enactment is possible by mid-February but looks more likely by early March. No large investors will make any policy changes or announcements until the issues are less confusing, or even voted into law. Apparently, the bill would temporarily increase the limit on mortgages Fannie Mae and Freddie Mac may securitize from $417k to up to $730k. In addition, the bill would increase the limit on loans the Federal Housing Administration (FHA) may insure from $362k to $625k. This should help to reduce spreads in the jumbo mortgage market! One estimate mentioned that as many as $400-500 billion in loans could qualify for refinancing. As these loans refinance, it could ease pressure on capital-constrained bank balance sheets. And “temporary” items like this are difficult to rescind after a year, which would also be good news for originators."

So what does this really mean? If this change is made, particularly in high priced areas, loans would be conforming up to $730 - today's rate quoted from Wells Fargo Bank was 5.75% on a conforming loan (loan amount up to $417,000) and 6.876% on a non-conforming loan (jumbo loan) - 1.126% more! That's a big difference! That will enable home buyers to afford a slightly higher priced home, that will enable anyone who currently has a jumbo mortgage at a higher interest rate to refinance!

This is just another encouraging sign that the powers that be are taking steps to ease the home buying and mortgage crunch! If this becomes available as expected, the market just might take that turn we've been waiting for!

Remember BE INFORMED and CHECK BACK HERE OFTEN