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

Increase to conforming loan limits?

As a part of the fiscal stimulus package which the President is expected to sign into law today there is a provision designed to offer relief to homeowner’s with loan amounts above the current conforming loan limit ($417,000). However, the law is unlikely to impact most of the country.

The reasoning behind the provision is to help homeowner’s who are having trouble procuring mortgage financing because their loan amount exceeds the current conforming loan limit. The credit tightening that has taken place over the past 6 months has increased the cost of non-conforming loans and made it more restrictive in terms of qualifying.

However, the final version of the law states that conforming loan limits will remain $417,000 in all areas of the country EXCEPT those areas where 125% of that areas median home price exceeds $417,000 (not to exceed $729,750). The timeline for the temporary extends through December 2008.

For example, if an area had a median home price of $400,000 then the temporary increase of the conforming loan limit would be $500,000 (125% of $400,000). It has yet to be published what the official “median home price” is for the different parts of the country but initially it looks like the Portland- Metro AREA will not benefit from the provision.

Our initial research suggests that our median home price will be published in the range of $300,000-$330,000.

In the Pacific Northwest it looks like the only areas which will see increases are the following (Remember these are estimates for now):
Bend- $447,500
Medford- $422,500
Seattle/ Tacoma- $493,375
San Juan County- $477,355

Once the official figures are issued we’ll plan to give you a follow up report.