Gabe's Blog

Many people have asked me what the status is on the increase of the conforming loan limits and when will it take affect.  So here is the scoop... 

Last week on February 13th, President Bush signed off on the bill (H.R. 5140).  However, even though the President signed off on the bill, we still have some time before we can actually utilize the new loan limits and place consumers into mortgages with the higher loan limits. 

The new conforming limits are going to be based off the median home price in each metropolitan statistical area (MSA) throughout the United States.  Therefore, there will not be a standard conforming loan limit like there is today (currently $417,000).  Unofficially, the new conforming loan limit for a single family residence and condo will be $729,750 (175% of the current conforming loan limit) in most parts of Santa Clara County, San Francisco County, Santa Cruz County and San Mateo Counties.  In other areas like Napa, Santa Rosa, Petaluma, San Luis Obispo, Vallejo, Stockton, Modesto, and Sacramento, the conforming loan limit is expected to be less. 

One of the reasons that lenders are not ready to start utilizing the new conforming loan limits is due to the fact that HUD has 30 days to determine the median home prices across the country so Fannie Mae and Freddie Mac can establish the limits for each area as briefly described above and update their systems.  Fannie Mae and Freddie Mac need to update their systems and processes as well once the new limits are finalized.  Then...well after that each lender will need to update their systems and guidelines before they can approve any loans under the new conforming loan limit.  So, this leads me to believe that we have anywhere from 30 to 90 days (or more) before we can actually put a consumer into a loan under the new conforming loan limit. 

Here is what one lender representative said last week in regards to taking loan applications under the new conforming loan limits, "We will wait for the marching orders from Fannie Mae before we take in any loans with the new limits. Fannie Mae is working feverishly to reprogram their systems and come out with a planned strategy for possibly tier pricing. Also, there could be certain underwriting restrictions and possible limited amount of products issued under the new loan limits. So to take in applications at this point could be extremely risky."

Here is a statement from last week made by Amy Bonitatibus, Senior Manager, Communications, FNMA:

"The temporary increase in the GSE loan limit that President Bush signed into law today will help bring stability, liquidity and affordability to an important part of the housing finance system. Fannie Mae welcomes this opportunity to help support the housing market in high-cost areas, and we are working with our regulators and our lender partners to implement the change as quickly as possible."

http://www.fanniemae.com/media/statements/2008/021308.jhtml?p=Media&s=Statements

One last item that you should know.  As Fannie Mae is going to be increasing the conforming loan limits, this will most likely push interest rates higher.  This is due to many reasons but most of all because the higher loan amounts will increase the risk of the loans.  Additionally, this will increase the demand and the number of transactions so therefore, it will push rates higher as well.  Just my thoughts and my opinion on what we should all expect to see.

Do you have a Home Equity Line of Credit (HELOC) on your house?  Do you have any unused portion of your existing HELOC?  If you have answered yes, please read below:

Here is an example of what I mean, you have a HELOC for $100K but only have a $60K balance.  Therefore, you have $40K of unused funds available on your HELOC.  I have been told by several past clients, friends, and colleagues that lenders are putting a freeze on any "unused" portion of their HELOC or reducing the credit limit.  Several lenders have announced that they are putting a freeze on accounts for reasons including but not limited to: payments more than 2 days late, inactivity, zero balance, depreciating markets, etc.  

I have been watching lenders over the last 8 months tighten their guidelines and increase their lending criteria to qualify for a HELOC.  Some lenders are not even offering mortgages with less than 25% down.  Other lenders are no longer offering HELOCs or second mortgages at all.  Most lenders today are now requiring at least 5% down with a conforming loan amount and 10% down with a non-conforming (Jumbo) loan amount.

Here is an article in today's Washington Post if you would like to read more, http://www.washingtonpost.com/wp-dyn/content/article/2008/02/22/AR2008022202987_pf.html