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Fannie Mae / Freddie Mac > Lending limit at $417,000 to Increase |
FANNIE MAE | FREDDIE MAC |
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Conforming Loan Limit Increase Falls Short of Expectations (April 21, 2008) The goal of Congress and the White House was to relieve some of the pressure on the secondary market by allowing the Government Sponsored Enterprises (GSEs), Fannie Mae and Freddie Mac, to purchase mortgages exceeding the $417,000 limit which seemingly had no takers. Since August of 2007, when the mortgage meltdown first unfolded, buyers of mortgage-backed securities all but vanished for non-conforming loans and lenders have been resistant since that time to make loans they could not readily sell. Increasing the conforming limit beyond the $417,000 maximum was meant to resolve the problem by providing GSE buyers for these loans thereby improving the liquidity in the mortgage market. However for both mortgage originators and mortgage borrowers the result has fallen short of expectations, for in spite of the raised limit in conjunction with the multiple rate cuts by the Fed, the mortgage lending system remains at a standstill. In fact the system is thought by many industry insiders to be as paralyzed today as it was back in August and now with the rate decreases and the resulting number of borrowers wanting to refinance, perhaps it’s even worse. Though the bill was passed in mid February of 2008, Fannie Mae and Freddie Mac began purchasing mortgages at the increased limit at the beginning of April. It was anticipated to take some time for the Department of Housing and Urban Development (HUD) to publish the required data on the median home prices throughout the country upon which the new higher limits were to be based. It may not be until the fourth quarter of the year before investor’s comfort level with the new higher limit securities occurs. As a result it is expected to be likely that Congress will extend the higher limits past the current deadline of December 31, 2008. Industry observers are also hopeful that the recovery of the mortgage market will accelerate by the end of the second quarter at which time much of the bad news relating to the sub-prime write downs should have surfaced. In the meantime, the going may remain tough for mortgage borrowers along with the mortgage originators as the supply chain for funding loans is still choked off by lenders exercising caution in funding loans they may not easily sell and are not willing to risk being stuck holding onto. Mortgages should remain difficult to obtain in most loan categories except for the conforming loans at the standard limit of $417,000. Underwriting guidelines have tightened and are expected to remain so with a return to traditional guidelines the norm for income verification, credit and down payment requirements. The spread between conforming and the new “jumbo conforming” loans can also be expected to remain high as a risk premium for loans at the higher limit will persist but should be more favorable than prior to the new limit becoming effective, when the spread was as high as 2%.
Jumbo Rates Not Likely to Drop as Much as Expected Feb 23, 2008 Loans meeting the new higher limits should be eligible for purchase by the GSEs and subsequently securitized by Wall Street sometime during the second quarter of this year. Prior to the fall-out in sub-prime lending, the interest rate spread between conforming and non-conforming loans had fallen to as little as .25%, beating the previous standard spread of approximately .50%. However after the problem in the sub-prime market came to light and the investors of mortgage-backed securities disappeared, the spread between the two segments has grown to as much as 1%. The hope now is that under the new proposed limit, this spread will return to the norm of .50% which will still be a terrific boon for non-conforming/jumbo loan borrowers but not the windfall that was perhaps hoped for.
Temporary Loan Limit Increase Now a Done Deal Feb 16, 2008
A key provision of the bill is that it is effective for mortgages originated between July 1, 2007 (making it possible for lenders to get some of these older loans sold and off their books) and December 31, 2008. Therefore new mortgages which are originated before the end of the year, either for a refinance or for a purchase, will qualify for this new higher limit. The Department of Housing and Urban Development (HUD) has 30 days from the date the bill was passed, on February 13, 2008, to publish the median home price data applicable throughout the country, then the new conforming limit will be 125% of the median home price of the HUD designated region or area. This maximum is not to exceed $729,750 nor will it be less than the previous maximum of $417,000. It is likely that only a few urban areas, all located within the state of California, will likely qualify for the maximum limit of $729,750. For homeowner’s who have jumbo mortgages (loans in excess of $417,000), this news should provide some welcome relief as they are now eligible -until the end of 2008- for the low interest rates previously permitted only conforming loan borrowers. February 8, 2008 For those who can take advantage of them, the bill's mortgage market provisions are likely to give more of a long-term financial boost than the tax rebates of $600 directed to individuals and $1,200 to couples, economists said. The stimulus package temporarily raises the maximum size of mortgages that government-sponsored mortgage companies Fannie Mae and Freddie Mac can purchase and market as securities from $417,000 to as high as $729,750 in expensive parts of the country such as New York and California.
January 31, 2008 Proposed Increases in Fannie Mae and Freddie Mac Loan Limits
Up until now, Fannie Mae and Freddie Mac loan products were capped at $417,000; above this limit meant jumbo loans. The difference in pricing between conforming mortgages and jumbo mortgages (loans with values in excess of conforming loan limits) is usually considerable. But for homeowners and borrowers in many urban areas, particularly throughout California, the limits for conforming loans barely scratched the surface of typical home costs.
Stimulus Plan May Come to the Rescue of Jumbo Loan Borrowers Since the sub-prime meltdown erupted last summer getting a jumbo (or non-conforming loan to use mortgage industry jargon) has become much pricier for consumers as investors for these loans have all but disappeared. Jumbo loans are a category of loans which exceed the maximum limit that the so-called GSE’s (Government Sponsored Enterprises) such as Fannie Mae and Freddie Mac are allowed to guarantee. Therefore it had been private investors who have supported and invested in the mortgage-backed securities of these loans in the past. However Washington may be attempting to change this in an effort to shore up a free falling housing industry. The current GSE conforming loan limit on a single family home is $417,000 and the Bush Administration, along with Congress in an unprecedented level of bipartisan support, appear to be on course to raise the GSE limit as part of a $150 billion dollar fiscal stimulus plan. Under the plan, which has been backed by Congress and is on the fast track for approval by both the Senate and the President, GSE loan limits will be temporarily increased to $625,000 until Dec. 31, 2008 and may be raised even higher (perhaps up to $730,000) in high cost areas of both the east and west coasts. A permanent loan limit increase may be permitted under the plan impacting FHA (Federal Housing Administration) loans under the direction of HUD (the Department of Housing and Urban Development) and would raise the maximum on these loans to a reformulated 125% of a county’s median home price, with a new maximum loan limit of $729,000 (up from a current limit of $362,790). The plan must pass any road blocks thrown up by the Senate and the President but it appears the deal could be done sometime between mid-February and mid-March. Some people are referring to the higher conforming limits as Super Conforming Mortgages. Single-Family Mortgage Loan Limits effective January 1, 2008: First mortgages
Second mortgages
Fannie Mae's 2007 Conforming Loan Limit Remains at $417,000 November 28, 2006 WASHINGTON, DC -- Fannie Mae (FNM/NYSE) today announced that its 2007 maximum conforming loan limits would remain at the limits set in 2006, as determined by the Office of Federal Housing Enterprise Oversight (OFHEO). OFHEO's full announcement can be found at www.OFHEO.gov. Limits for single-family mortgages purchased by Fannie Mae will remain at the 2006 level of $417,000 for one-unit properties for most of the U.S. Limits for multi-unit loans for 2007 will be as follows: two-family loans $533,850, three-family loans $645,300, and four-family loans $801,950. The 2007 loan limit for second mortgages will be $208,500. The maximum amounts for one-to-four-family mortgages and second mortgages in Alaska, Hawaii, Guam and the U.S. Virgin Islands are 50 percent higher than the limits for the rest of the country. Most loans Fannie Mae purchases are well below the conforming limit. The company's average loan size for single-family properties in the first two quarters of 2006 is approximately $187,000.
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