Higher Loan Limits – Will It Help?
March 6th, 2008 Categories: Mortgage News
As you may of heard, President Bush signed into law the “Economic Stimulus Act of 2008″ on February 13th. In addition to several other benefits for consumers, it provides temporary conforming loan limit increases in high cost areas.
The new temporary loan limit increase will be calculated by taking 125% of area median home values and adjust the loan limit accordingly. Currently, there are 30 MSA’s (Metropolitan Statistical Area), half of which are in California. HUD has 30 days from when the package was signed to identify the impacted MSA’s and define median home prices in these affected areas. That will put us at March 14th. What we do not know is what time frame will be considered when defining these median home prices. Due to the volatility in the mortgage market, median area sales prices may be dramatically different throughout the year, so the time frame used by HUD will be critical!
Fannie Mae and Freddie Mac has publicly stated that they want to purchase these larger loans but they will not update their decision engines (Automated Underwriting Systems) for the temporary loan limit increases. This could mean some manual workarounds and a delay in implementing the loan limit increases. Most mortgage bankers speculate that the delay will be anywhere from a few weeks to 2 months. That suggests that lenders will not be able to fund into these pools until mid April to late May.
There is wide spread speculation that the larger loans will only have a slight pricing advantage over their jumbo counterparts. Meaning, loans of $417,000 and less will continue to be the best price, then the “temporary loan limit” will have a slightly higher price, and finally the jumbo rates will be last. This is due to the fact that the larger loans will be trading in a different mortgage pool specified under the temporary loan increase and may not trade as favorably as the traditional TBA pools. In short, the interest rates on these larger loans will be lower than jumbo loans but not likely to be the same rates as conforming loans.
Tags: higher conforming loan limits, higher mortgage loan limits, mortgage rates, mortgage trends
