Conforming Mortgage Loan Limits increasing to $729,750

Congress and President pass bill for Fannie Mae/Freddie Mac to increase non jumbo mortgage loan amounts

	Fannie Mae/Freddie Mac Conforming Mortgage Rates Just One Click = Today's Rates

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%.  

	Fannie Mae/Freddie Mac Conforming Mortgage Rates Just One Click = Today's Rates

Jumbo Rates Not Likely to Drop as Much as Expected

Feb 23, 2008
The announcement last week outlining a temporary increase in the conforming loan limit by the GSEs (Fannie Mae and Freddie Mac) may not prove to be the remedy it was initially thought to be.  The temporary increase in the limit, up to 125% of the median home price in an area (to a maximum of $729,750) was thought to be the antidote the non-conforming (or jumbo) borrowers were waiting for.  But after revealing further details of the plan it will not likely be the cure-all expected for the non-conforming segment of the market.  While increasing the conforming loan limit as part of the government’s fiscal stimulus plan was initially perceived as a vehicle for increasing demand for non-conforming mortgage-backed securities, the execution of the plan may not yield the anticipated result because while Fannie Mae and Freddie Mac will be permitted to guarantee and purchase loans to a maximum amount of $729,750, these securities will not be traded in the critical area of the secondary market which would make a drop in interest rate feasible for non-conforming borrowers.  Mortgages in excess of the previous conforming limit of $417,000 are not going to be placed into the same mix of loans and are not to be traded on the all important TBA (To Be Announced) area of the secondary market which would in turn generate the liquidity needed to produce a substantial drop in rate.  Apparently because of the larger loan size, the relative loan risk is higher and therefore the rate will reflect this higher risk.  This concept is in stark contrast with the CDOs (Collateralized Debt Obligations) which created the sub-prime mess by blending the high risk sub-prime loans with low risk prime loans. 

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
As part of Washington’s $152 billion fiscal stimulus plan, established to provide rebates to taxpayers, an essential element of the plan will also raise the conforming loan limit on home mortgages.  The new limit will permit the Government Sponsored Enterprises (GSEs) to purchase mortgages up to $729,750 until December 31, 2008, after which time the previous limit of $417,000 will go back into effect again.  The purpose of the increase is to inject some temporary and desperately needed confidence and liquidity into a scared mortgage bond market.  This means that Fannie Mae and Freddie Mac, both GSEs which are private corporations chartered by the federal government, will be able to purchase and guarantee loans over the previous $417,000 limit so that lenders will be able to sell these mortgages on the secondary market to help generate some liquidity.  Many investment sources for mortgage-backed securities dried up after the chaos erupted in the sub-prime market last summer.  Investors had abruptly stopped buying mortgage-backed securities if the loans behind them could not be sold to the GSEs, namely Fannie Mae and Freddie Mac.

	Fannie Mae/Freddie Mac Conforming Mortgage Rates Just One Click = Today's Rates

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
WASHINGTON (AP) — The biggest winners in the economic rescue plan now awaiting President Bush's signature are likely to be Americans with more expensive homes who will be able to refinance their home loans at cheaper rates.

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

As part of the economic stimulus package making its way through Congress this week, a special proviso directly affects the mortgage power of Fannie Mae and Freddie Mac, and the definition of so-called jumbo loans.

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.

	Fannie Mae/Freddie Mac Conforming Mortgage Rates Just One Click = Today's Rates

The economic stimulus package totaling $145 billion offers tax rebates, business tax breaks, and extension of social welfare benefits. It also expands the Federal Housing Administration’s ability to insure higher-priced mortgages, and increases the size of conforming loans available from Fannie Mae and Freddie Mac. The new limit is proposed between $625,000 to $730,000. Many are saying the high end will be $729,750. This new limit for conforming loans would be a temporary measure for one year.

Proponents of this increase for Fannie Mae and Freddie Mac conforming loans say the new limits will have a positive impact on the mortgage markets, especially in high-cost areas. People needing California jumbo loans, or jumbo loans elsewhere simply to afford the exorbitant prices in the areas, could now potentially qualify for conforming loans.

Opponents to the increase question Fannie Mae and Freddie Mac’s ability to cover this new limit. Together, the organizations back more than $4 trillion in mortgages. Can they really support this, and can they support additional trillions? They also question the ability for a quick fix such as this to provide any real help for the plummeting economy.

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.

• One-family loans: $417,000
• Two-family loans: $533,850
• Three-family loans: $645,300
• Four-family loans: $801,950

• $208,500
• In Alaska, Hawaii, Guam, and the U.S. Virgin Islands: $312,750

Fannie Mae's 2007 Conforming Loan Limit Remains at $417,000
Following OFHEO Announcement

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.