When will the conforming limit be raised to $729,750? We are tracking this carefully. Here is a link to an AP story that appeared recently.
http://biz.yahoo.com/ap/080220/shrinking_jumbos.html?.v=4&.pf=’loans
The AP story above sheds some new light. This story suggests that rather than simply raising the “conforming” limits to $729k or whatever the figure will be for your area, Fannie & Freddie may instead maintain the current conforming loan structure as is, and create a separate program that would essentially be a separate “Jumbo” conforming program. This means the rates for the larger loan amounts may still run higher than those for traditional conforming loans.
One of the reasons Jumbo rates are so much higher right now than the conforming loans, is that investors who are shopping for fixed income securities, have been spooked by everything they have heard on CNN et al, about various problems with jumbo loans. The investors are demanding a much higher yield in order to take on the risk associated with Jumbos.
Conforming rates are significantly lower than jumbo rates because investors are not quite as concerned with the risk associated with the smaller loans, plus they feel the backing of Fannie / Freddie will limit the risk somewhat. If new “Jumbo conforming” loans are to be backed by FNMA & FHLMC in the same way as the traditional conforming loans, it could make investors somewhat more willing to buy Jumbos, but we won’t know how much it will close the gap in rates until the securities tied to these conforming Jumbos hit the streets.
The bottom line is that when this rolls out, there may still be a substantial difference between traditional conforming rates and a new “jumbo” conforming rate. Ultimately the investors will decide how much. For now, I would not put off a buying decision to wait for a jumbo loan at today’s conforming rate.
[...] will the conforming loan limit be raised to $729950? (part two) Kelly LaVaute wrote an interesting post today onHere’s a quick excerptThis story suggests that rather than [...]
By: Loans - Information on Loans » When will the conforming loan limit be raised to $729950? (part two) on February 21, 2008
at 7:39 pm
[...] Original post here [...]
By: Loans News Aggregator » When will the conforming loan limit be raised to $729950? (part two) on February 21, 2008
at 8:16 pm
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By: flexible mortgages on March 2, 2008
at 3:40 pm
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By: bfletcher on March 2, 2008
at 5:29 pm
this is interesting. I read the actual bill and it seems to me if that is what the lenders do they are operating against the actual law. The law is pretty sepcific as to raising “the conforming ceiling in accordance with the metropolitan area’s median price or some percentage over what it was…FHLB has all ready put this into place and they do not have a “special conforming jumbo” which to me seems agains the actual bill/law that was put into place. Seems like a great opportunity for class action lawyers to take advantage of. I hope your blog is read by some one who can make these legislators put their money where their mouths are otherwise the whole thing was a big puff of hot air. I wrote to Nancy Pelosi and it got kicked back since her Federal email rejected and her city of SF would only take email if you were registered in her district in their database. Sad that we can’t even get emails to our law makers.
By: Suzanne on March 31, 2008
at 2:49 pm
Hi Suzanne, Thanks for your comment. I believe it is not so much a matter of what the lenders are doing, as it is how Fannie and Freddie have elected to implement the authorization by Congress to buy the larger loans. Lenders can only offer what Fannie and Freddie make available.
I have not had an opportunity to read the actual authorization that was passed but Fannie and Freddie have indeed released the higher loan amounts in the form of a separate program. The new “Jumbo Conforming” program does indeed set the limits based on metro area value data as calculated by OFHEO. See the area limits at the link below.
http://www.ofheo.gov/media/hpi/AREA_LIST.pdf
The original “Conforming” loans are still unchanged with a limit of $417,000 nationwide (with the exception of Alaska and Hawaii.)
From everything I have read, this decision was made primarily out of concern for the safety of the original Conforming programs. As you probably know, Fannie and Freddie do not loan their own funds, but rather raise the funds through the sale of instruments backed by the mortgages they “buy.” Since there is so much fear in the marketplace surrounding the “Jumbo” mortgages right now it is difficult to sell securities backed by the larger loans. It takes a much higher yield to attract investors for the larger loans hence the spread between the traditional Conforming rates and the traditional Jumbo. Fannie and Freddie did not want to take a chance that the larger “Conforming” balances might negatively affect the traditional Conforming rates. Legal or not it seems like the decision was a sound one. Investors still appear to be demanding a much higher yield to buy securities backed by the “Jumbo Conforming” loans. Rates for the new Jumbo are not quite as high as the traditional Jumbo loan but are still quite a bit higher than the traditional Conforming.
I will have to read the actual bill and see if I read it that way you do. I kinda hope I don’t because I am glad that they did it this way. I would hate to see the new higher limits poison the well for the traditional conforming loans.
Thanks again for your comment. Please visit again.
BFletcher
By: bfletcher on March 31, 2008
at 6:39 pm
I can tell that this is not the first time at all that you write about this topic. Why have you decided to write about it again?
By: Pirsey on April 22, 2009
at 7:13 am