I received an excitedly written email a day or two ago from a realtor about the new increase of the conforming loan limit. She was sure this would "turn the market around" allowing people to refinance into fixed rate loans and also allow all those "pent up" buyers to purchase some of the overpriced inventory. I normally just ignore these spam emails but I had to look into this one just to see if this might slow down the correction of prices.
Here's the deal. Before President Bushtard signed this legislation, the max loan Fannie and Freddie were allowed to buy was $417k. Anything more than that was considered a Jumbo Loan and the bank either had to keep that loan or try to sell it off to Wall Street. Because of the added risk of getting stuck with these loans the lenders are charging higher rates on Jumbo's. Most Jumbos are a percent or two higher than a conforming loan (under $417k). This is the rational behind the increase. If us buyers can get a lower rate then we are more likely to spend more. In other words they are hoping we buy an overpriced home.
The new legislation increased the limits to $729k in high cost areas. It seems we are saved thinks the Realtors. But wait, there is some fine print you need to read. The "Limit" is raised to "as high as $729k". Not $729k across the board. They peg the increase to the current HUD median price for the area you are buying in. It sets the limit at 125% of the current median price according to HUD. I'm not sure what HUD thinks the IE median price is but I know DataQuick thinks it's $315k. If we take 125% of $315k we get $393K. Hmm, exactly how is this going to help? Fortunately the old $417k limit still applies to us. If the HUD's median is higher than DataQuicks then we may see a slight increase. Don't count on it though.
It seems like this is just a lot of hot political air and it will not affect us in the IE one little bit.
16 comments:
Raising the ceiling for the conforming loan won't do a thing to save the bubble that was propped up by loose (for a lack of looser word) lending practices. Now that the banks are still reeling from their recent, and most likely continuing state of shell shock, they will be THROUGHLY checking any applicants financial footing before the money goes out.
And in case we haven't noticed, Californias, Americans in general, don't make that much or save that much these days to qualify for anything.
The correction will continue.
Seems to me the increase won't help anywhere, not even here in OC...raising the conforming limits doesn't raise my or anyone elses income.
Using the rule of thumb of 3 to 4 times annual income for a home, my $150G a year buys a crap condo in OC...or a cookie cutter tract home in the IE...no thanks, I'll wait.
The correction will continue...for quite some time.
This is probably a stupid question, but on top of everything you've said, isn't it also true that Fanny and Freddie aren't REQUIRED to buy the higher loans? The law merely allows them to, right? And don't they have their own shareholders to answer to? I really don't understand all this stuff (and I am the first to admit it!) but if this is correct, isn't it likely that the new law merely looks like something is being done when in reality the agencies are (I hope) too smart to take the bait.
Correct, they can still turn down loans that they don't like. The new regs simply allow then to purchase higher value loans it does not compel them to do so.
Raise it to a million! It doesn't matter. Most people can't refinance because they're upside down with still declining values. No lender will touch them, even if Fannie and Freddie buy it from them.
Raising the limit most definitely screws the IE. This will drain low dollar amount loans to pay for the fewer higher loans. With the old limit people were essentially forced to look to the IE (and antelope Valley) to use a conforming loan. Now more people can go to SFV, Santa clarita, Ventura, even The OC.
That's correct, the new rules increases limit in the OC and LA where the medians are higher. The OC for example has a median of $520k. The new conforming limit there would be $650k. So a buyer can get a lower rate on a loan up to $650k buyin a house in the OC but in the IE that same buyer with the same credit rating and same income would only be able to get the same intrest rate on a max loan amount of $417k. Anything over that amount and he's paying another percent or two. That translates into an extra $50k to $100k+ of buying power for the same monthly payment, depending on the rates. This is going to make a lot of the commuters think twice about staying in the IE.
This whole thing is joke and will only help a few people. But make the government look like they are doing something. This is a full document loan meaning you have to prove that you make enough to qualify. So this will only help a few who can and anyone with a supprime alt A or even an adjustable loan are going to be left in the middle of dessert for dead.
Why raise limits when people can't afford the homes?? Are these people stupid? Lower the freakin' home prices!
Yo, X! Get rid of this guy Fox and his link!!! He's troll who has planted somekind of spyware or trojan link on your bolg, man!
You should track his IP address and hack him...
Done!
I am totally confused by this whole thing. Today I read in the SDU-T that some government agency is trying to buy the land right now so that there will not many foreclosured houses that will be bought by investors and speculators. The reason is that those investors will not take care of the houses. They will only rent the houses out therefore bad for their community. It sounds like the government has unlimited $... Hopefully it will not be our money.
Everything they they have done has been a duff. We all need wellfare checks say 75000 + income. But that might be short of the green.
For CA, FL, NV, and AZ, I've been reading that come March 1, 2008 you can't get PMI unless you put at least 10% down. As you'll know PMI is for when you put less than 20% down. No PMI means No Loan, right? So, Is this true? Is this going to be the final straw that breaks the camel's back?
Financing is getting harder and harder to get. The higher priced loans are especially hard to secure these days without a sizable down payment. Each lender is different but they are all getting very tight with the cash. Most lenders have identified CA as a declining market and are asking for higher and higher DPs. It's certainly not going to help the market if no one can get a loan but it will put more downward pressure on the prices.
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