www.LagunaBeachMortgage.com 

By now many folks have heard that the Fannie Mae and Freddie Mac maximum loan limits are going to be increased to an amount up to $729,750.  I am already being asked by clients who have loans in process if they can get the new conforming loan.  I had to stop and think about that for a moment because the first time I was asked, I had not yet heard a word from any of our lending sources that new conforming loan amounts were imminent. 

I did a quick Google search for any news on the subject and there was nothing concrete from anyone. As I was reading articles about the bill on its way for the President to sign, one word caught my attention.  This bill was to include “authorization” for the GSEs, FNMA, and FHLMC to raise their limits.  Since Fannie and Freddie are both stockholder owned corporations it occurred to me that they might have a say in if, when, and how, they would implement new limits.  The limits are to be set individually according to home values in different metropolitan markets rather than a uniform nationwide figure (except Alaska, and Hawaii) like they use now.   

How long would it take to implement regional limits?  Then there is the question of interest rate.  I caught myself making the assumption at first that the new “Jumbo” size conforming loans would boast the same rate as current conforming loans.  Since Fannie and Freddie don’t actually loan money from their own coffers, but rather raise the funds through the sale of mortgage backed bonds on Wall Street, it may still require a higher yield to attract investors to buy the bonds secured by the higher loan amounts as is the case now.

After about 20 minutes of reading and thinking about the question,  I called my client back and explained that the bill that was passed really raises more questions than it answers. I had just read that HUD claimed it might take up to 30 days just to provide the housing value data necessary to set the new limits in various parts of the country.  Since my clients deal has to close in less than 30 days I advised her not to wait.Since having this conversation few of these questions have been answered. 

Here is the statement posted as of today on Fannie Mae’s own web site:

“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.”

I have also received a bit of input on the subject from a few of our lending sources.  So far they are echoing the same list of issues that will need to be worked out before we should expect to see a conforming loan of $729,750.  Here is a bulletin we received from a representative of a major national mortgage bank.

“As many of you know, late last week both the US House of Representatives and Senate approved an economic stimulus package that, amongst other things, will increase the maximum loan amount that Fannie Mae and Freddie Mac (collectively known as the “GSEs”), and FHA/VA will accept.  This bill will likely be signed into law by President Bush within the next couple of days.  Officially, this increase is considered “temporary” for loans originated between July 1, 2007 and December 31, 2008, but some observers think that the government will be pressured to extend this increased cap indefinitely until the housing market shows signs of stability. This is obviously a tremendous development for our borrowers and business, especially in the short run.  Not only will it help many previously ‘jumbo’ borrowers who now can get a loan under the new limits, it could serve to stabilize a very volatile secondary mortgage market and, in turn, borrower pricing and guidelines. However, there are many open issues that need to be resolved before XXXXXXX (as well as competitors) can begin pricing and selling loans under these new terms.  Resolution on some of these key, and some very technical issues needs to occur before XXXXXXX can price and sell loans to this new execution.  None of our major competitors has announced pricing for loans under the new limits either, as they are facing the same challenges:

• What exactly will the new limits be?  Many of you have no doubt heard that the new GSE limit will be $729,950.  Unlike previous limits, this new amount will not be a nationwide standard.   Instead, the new limit will be based on prevailing house prices in individual metropolitan areas.  $729,950 will likely be the new limit in Los Angeles, San Francisco, and other higher cost areas.  Other more moderately priced housing markets will have differing limits somewhere between the current $417,000 and the $729,950 max, and some affordable markets may actually see the limit stay the same.  
• For FHA, the specific new limits are also in limbo.  The minimum loan amount ceiling will increase from $200,160 to $271,050, and the maximum loan amount ceiling will increase from $362,750 to $729,950, again depending on housing prices in individual geographic regions. 
• How will the loans be sold in the secondary market/what price will investors pay for these loans?  (This in turn determines the rate we can offer borrowers).  There are numerous questions still outstanding here, such as:  What fee will the GSEs charge to insure these loans (known as a “guarantee fee”)?  Will investors pay the same price for these loans as loans under the old limit? 
• What loans will the GSEs accept?  What will the minimum FICOs / Max LTVs be?
• Will these loans be processed through the GSE’s respective underwriting system (FNMA’s desktop underwriter and Freddie Mac’s loan prospector, respectively?)  or some alternative mechanism?  The GSE’s are telling us that they’re facing system challenges of their own in adopting these new limits.  They’re not used to having a complex limit scheme based on geographic region – they need to change some of their systems and processes just like we will.

We’ve already started talking to the GSE’s about these issues.  We have terrific relationships with both of them and expect to be on any pilot type of initiatives as the new limits develop.  As soon as the president signs the new bill and we can resolve some or all of the above issues, we’ll roll out a program serving these higher balance loans.  We will also be watching competitors very closely to see what we can learn from them.” 

So there you have it.  When the new “jumbo” size conforming loans will be available for public consumption, is just one of the many questions that remains to be answered.  If you are in the middle of a loan transaction, you might not want to stop and wait for an answer.