New Conforming-Jumbo Loan Limits
Written by Susanne on March 12th, 2008
There has been a tremendous amount of anticipation awaiting the increase in conforming loan limits. On February 13, President Bush signed into law a $152 billion economic stimulus bill that temporarily allows Fannie Mae and Freddie Mac and the Federal Housing Administration (FHA) to guarantee mortgages as large $729, 750 in some high-cost markets.
Since that time I have received numerous calls from members asking, when will this take place? What will the rates be? When will the credit union offer higher limits on conforming loans?? Can I start a refinance now? Can I refinance my jumbo loan to reduce my interest rate? How about cash out? Am I in a high-cost area?
Before we get in to the particulars, it would be best to understand the reasoning behind this bill and the role Fannie and Freddie play.
Fannie Mae and Freddie Mac, private government sponsored enterprises (GSEs), buy conforming mortgages (up to $417,000) and mortgage-backed securities and hold them in their investment portfolios. This reduces the cost of borrowing by providing liquidity to mortgage markets. The GSEs also provide liquidity by bundling up loans that meet their underwriting standards and sell them as guaranteed securities to other investors.
The stimulus bill gave Fannie and Freddie clearance to step into the market for “jumbo light” loans in high-cost areas. They can now buy securitized jumbo loans originated anytime between July 1, 2007 and December, 31, 2008 from jumbo lenders who kept these loans in their portfolio. These lenders can get some of these loans they’ve made in the last eight months off their books and free up capital to make more loans.
The hope was that if the GSEs could venture into what was considered jumbo loan territory; interest rates would be reduced to conforming loan rates. Jumbo rates have been running about 1% or higher than those for conforming, conventional loans.
Investors who buy jumbo mortgages in the secondary market have become very wary of loans that aren’t guaranteed by Fannie and Freddie. This has reduced the supply of money available to make such loans and have pushed up jumbo rates.
But will the investors be all that excited about the new jumbo-conforming?
It looks as if Fannie and Freddie will be required to package the new jumbo-conforming mortgages in a separate market than conforming loans. Investors who purchase these loans will likely demand higher returns as they see these loans as a greater risk. That means that borrowers may not see a large reduction in the spread between conforming and jumbo loans, a major objective of lawmakers in giving the GSEs the green light to venture into jumbo territory.
Recent updates received from Fannie Mae have outlined requirements for the origination, underwriting and servicing for the “jumbo-conforming” mortgage loans. Pricing will most likely end up somewhere between current conforming and jumbo pricing. The qualification rules will also be more restrictive than current conforming guidelines in many areas. Some of the highlights are:
- 90% Loan-To-Value (LTV) maximum for primary purchases for fixed rate mortgages and lower for adjustable rate mortgages, limited cash-out refinances (not to exceed $2,000), investment properties and second homes
- Primary residence purchase: minimum credit score of 700 if LTV is >80% and minimum score of 660 if LTV is =<80%
- No 30 day lates on mortgage/rental payments
- Maximum 45% Debt-To-Income ratio – fully documented income and assets required
- Full project review on condominiums
- Available products – 30 year and 15 year fixed and 5/1 adjustable only
- First liens only with an existing second on a refinance to be subordinated to the new first (cannot combine a 1st & 2nd on a refi)
To obtain the new conforming loan limits for your county, click on the link below –
I will keep you posted as additional updates become available. In the meantime, if you have any questions, please call me to discuss or write a comment/question and I will be happy to respond so that everyone will benefit.
