George's Blog

   Much ado had been made of the tax refund checks that will be going out to taxpayers after they file their taxes this year, with the intention that people will go out and spend these refunds and stimulate the economy. Polls do indicate however, that these refunds will go towards current debt service, or put back in the bank for a rainy day, thereby casting doubt on the results of this exercise.

   However, another benefit from the Package that has not been well publicized at all is that the Conforming Loan limit, currently $417,000, will be temporarily raised based upon the median home prices according to local metropolitan statistical areas (MSA’s).

Here in the San Francisco Bay Area, we will qualify for the maximum new conforming loan amount of $729,750. Conforming loans are underwritten and purchased by Fannie Mae (Federal National Mortgage Association), and Freddie Mac ( Federal Home Loan Mortgage Corp.), both of which are known as GSE’s ( Government Sponsored Enterprises). These corporations are hybrids that are partially owned by the US Government, but whose stock is publicly traded. They are designed to provide liquidity to the mortgage marketplace- what they do is buy loans from Banks, Mortgage Bankers, Credit Unions and other lenders, package them in securities, either stocks or bonds, and sell them on Wall St., which then generates more cash for them to buy more loans from lenders.  This ingenious system was created 60 years ago, and is responsible for consistent mortgage loan money being made available to home buyers and owners.

   Fannie and Freddie are more important than ever now, because the other investors in mortgages have fled the Market- the “Credit Crunch” you have heard so much about. Fannie and Freddie are left as the most reliable and consistent source of mortgage money to lend now. FHA loan limits will be raised also to match the conforming loans.

Why This Development is Huge For Us

  California, and other “high cost” areas should have had this higher loan limit formula long ago, but now until the end of December 2008, we have a window to take advantage of.

Who will benefit from this development?

1. People who have jumbo loans now that have adjusted, or will be adjusting.
2. People who have Jumbo fixed rate loans now with a rate over 6.00%
3. People who are looking for homes in the $417,000-$740,000. price range, who otherwise would have been stuck with a Jumbo loan rate.
4. People who have homes for sale in that price range that were Jumbo and now are conforming- greatly increasing the affordability to potential buyers, and marketability of the homes, just in time for the prime spring buying season!
5. People who have subprime loans that have adjusted or will be adjusting, and need some flexible underwriting guidelines can utilize the FHA as a replacement. There are essentially no more subprime lenders in business- those left are like hen’s teeth. If FHA loans limits were higher in the first place, we wouldn’t have had nearly as many subprime loans.  FHA is known and designed for more flexible underwriting guidelines than Fannie and Freddie, and will accommodate credit scores as low as 570.

This is all wonderful news folks! Things are looking up, as long as you or your friends are paying attention to this great opportunity. If you are in the above categories, or know someone who is, you should definitely check this out.

At this time, the conforming 30 year fixed rate are around 6.00% and the Jumbos are around 7.00%, so for a $650,000 loan, the difference is $427.47 per month! Could you use a $427.47 per month raise in your income, or reduction of your outflows? Of course you could-

Don’t wait—

The Real Deal Guy (SM)

George L. Duarte, MBA, CMC, CMPS

March 3, 2008