George's Blog

CONFORMING LOAN LIMITS PROPOSED TO RISE TO $729,750 AS PART OF THE ECONOMIC RELIEF PACKAGE FOR HIGH COST STATES!

    The White House and bipartisan Congressional Leadership has agreed to raise the FNMA/FHLMC (Fannie Mae and Freddie Mac) conforming loan limits from the current $417,000 to $729,750. The formula is the new “high cost” state loan limit is 125% of an area’s average median cost, which here in Alameda County is currently above $600,000. This is a huge development for California in particular, and will have a dramatic and immediate effect in helping to alleviate the real estate and mortgage crisis here. As I’ve mentioned before, there are severe problems currently with people who need to get jumbo loans refinanced, or to purchase a home – the jumbo investors have fled the market, and those that are still in it have tightened their underwriting guidelines, and raised their rates

    In the Bay Area, almost two-thirds of the homes were purchased using Jumbo mortgages last January-July 2007, but at the end of the year this percentage dropped dramatically, reflecting the lower sales activity.

    Now that the White House and both houses of Congress have agreed on the general terms of the stimulus package, a bill has to be introduced, first to the House, then the Senate. The legislators plan on fast-tracking the bill so it gets to the President for his signature by mid-February. At this time, this proposal has only a one-year window, then the loan limits revert back to the way they are now. There is speculation, however, that once this higher loan limit is in place, there will be great pressure to keep it permanently in the higher cost areas, simply because it makes sense to do so, and it helps consumers.

    This will help a lot of people who have jumbo loan amounts who need to refinance out of their ARM loans or their subprime loans that have adjusted or will be adjusting. However, these are still prime loans requiring good credit and equity, documentation of income and cash reserves. If these factors are not available, even these loans may not help some people. Fannie Mae and Freddie Mac have automated underwriting engines that make decisions on a borrower’s circumstances, and there are three different levels of pricing decisions that can occur depending upon how the risk factors are judged. This won’t help people of marginal credit who bought properties with no down payment in the last 2 years, with property values eroded in many places.

Stay tuned for more developments-

George L. Duarte, MBA, CMC

“The Real Deal Guy” (SM)