Loan Limit Increases Are Coming

The House and the Senate have agreed on the stimulus package that will allow the conforming loan limits to be raised by FNMA and FHLMC. President Bush is expected to sign the bill as early as next week. However, there are many details to be worked out and I would like to point out a few of the unresolved questions that still need to be answered. 1) The loan limit based upon 125% of the area medium would allow Orange County to be raised to $729,750. 2) Who will have access to the new higher limits? Currently the bill passed says any new purchase from the date of implementation to December 31st, 2008. There is a real question on refinancing. As it reads today only loans closed after July 1st, 2007 will be allowed to use the higher limits to refinance. Again, this may change. 3) Even though the limits are raised that doesn't mean that rate will be the same for all loans from $417,000 to $739,500. FNMA and FHLMC have stated the rates could be higher the higher the loan amounts even though they are all conforming. An example is $417,000 to $550,000, $550,000 to $625,000 and $650,000 to $729,750. They feel the risk will be greater and these are still jumbo loans in the minds of the investors buying the securities. 4) As FNMA and FHLMC have to set money aside in reserves for each loan made they are in question as to whether they have the ability to finance all of the new loans. 5) Any new borrower wanting to refinance must comply to the standard guidelines which means they must have the required amount of equity. If they owe more than their home is worth they will not have access to the program. 6) Orange County is now considered a Category 4 area. That means whatever the loan to value guidelines are with FNMA and FHLMC we are required to cut that back by 5% for Orange County properties. What was 95% is now 90%. What was 90% is now 85% and so on. This went into effect 1/18/2008. This will not be a cure all by any stretch but it will help those clients of yours wanting to purchase now and take advantage of the value propositions out there at better terms that what is currently available....at least until December 31st, 2008. I will keep you informed as the details materialize.