New “conforming” loan limits are not likely to help

The Fiscal Stimulus Package that was signed into law back in early February of this year included a provision that would temporarily allow the GSE’s (Fannie Mae & Freddie Mac) to buy loans which carried loan amounts higher than the current conforming loan limit ($417,000) under certain circumstances. The amounts have finally been released and it turns out that the provision will likely provide little help to homeowners for a few reasons.

The provision which was designed to help homeowner’s & lenders with mortgages that were considered “non-conforming” refinance or sell their loans has a few limitations. In the end, I don’t see this helping too many folks. Here’s why:

*Only applicable to “high-cost” areas: The provision allows the GSE’s to buy mortgages with loan amounts up to $417,000 except for areas where the median home price exceeds $333,600. In these so called “high-cost” areas the new conforming loan amounts are equal to 125% of that area’s median home price not to exceed $729,500. Here is a list of the only areas impacted in Oregon, Washington, & Idaho along with the new conforming loan limits:

Portland/ Vancouver/ Metro- $418,750
Bend, OR- $447,500
Medford, OR- $422,500
Seattle/ Tacoma, WA- $567,500
San Juan County, WA- $593,750
Teton, ID- $693,750
Valley, ID (Sun Valley)- $462,500

*Rates are not comparable to conforming loans: This next limitation may change over time as more lenders begin to originate the new loan amounts but for the time being rates on these new conforming loan limits > $417,000 are not the same as if the loan is $417,000 or less. I went onto one of my wholesale investor’s websites earlier this morning to check rates on a loan amount of $418,750 in the Portland area. It turns out that the new conforming loan limit carried a 30 year fixed rate of 7.875% whereas a loan amount of $417,000 could be locked @ 6.00%! Therefore, the new conforming loan limits do not necessarily represent expansion of the previous loan limits but instead creation of a new “Jumbo” loan option that carries rates significantly higher than conforming loans.

*The timeline: The provision currently only allows the GSE’s to buy these new loan amounts if they were originated between the dates of July 1, 2007-December 31, 2008. This timeline could be expanded I suppose if HUD deems it necessary.

In summary, at this point because of the limitations of the provision it doesn’t seem to me that this provision will help many folks.

In case you want to check the new conforming limits in another area here is the website to go to- https://entp.hud.gov/idapp/html/hicostlook.cfm