Here is the latest news on the implementation of Fannie Mae, and Freddie Mac, “conforming” loans with the higher limits recently authorized by Congress. The puzzle pieces are falling into place.  Late last week the Office of Federal Housing Enterprise Oversight, or OFHEO for short, released data that will allow Fannie Mae and Freddie Mac to set the new limits for the purchase of loans larger than the $417,000 maximum that currently exists in the lower 48 states.  This was the first piece of the puzzle necessary for implementation of the new program.   As expected the limits will control the maximum loan amount on an county by county basis. 

In-spite of the sense that various newspaper articles continue to convey, that FNMA will simply raise the limit for the current conforming rates up to the new loan limits, it is becoming evident that a separate program will be rolled out to accomodate the higher balances.  It appears that the existing rate and underwriting criteria will remain in place for loans up to the old limit of $417,000.

This approach makes sense because the traditional conforming programs have been the bread and butter of both Fannie, and Freddie.  Fannie and Freddie will not want to do anything to upset the current flow of business.  It remains to be seen what kind of yield will need to be offered to attract investors to purchase the securities backed by the larger loan amounts.  If the new high balance loans were to be lumped in with the traditional conforming loans, it is possible that the rates for the traditional loans could be adversely affected.

We are just beginning to hear details from some of our lending sources that indicate the release of the new Jumbo Conforming loan is near.  We have yet to see a Jumbo Confirming program appear on a rate sheet but one lender indicated we may receive pricing as soon as tomorrow.

 We are however seeing evidence that some of the underwriting criteria expected to be needed to qualify for the new Jumbo size conforming loans will be quite conservative.  For example, we have seen indications that the maximum percentage of your home’s value they will loan you under the new program may be 75% for a refinance (90% for purchase,) and only with full documentation of income and assets provided.  This reminds this veteran loan officer of  “the good old days” of mortgage banking.  We have heard the loans will be underwritten manually rather than through automated underwriting engines like the current conforming loans up to $417,000. I expect that only the strongest cleanest borrowers need apply.

Conservative underwriting, at least at first, may be a good thing.  It may be the only way to prime the pump and restore investors confidence in investing in securities backed by the larger loans.

In a way it seems like our industry is racing ahead to the past.  We will keep an eye on this important development and keep you posted. Please check back in a couple of days for the latest news.