President Signs the Stimulus Package-Conforming Limits Set to Increase Temporarily

Matthew Padilla of the Orange County Register put together
some facts about the new Stimulus Package and it's effect
on the FNMA/FHLMC conforming loan limits.

I have edited some of his research to apply it to how it may
affect the San Diego housing market.

Because it calls for increasing the conforming loan limit, it
now opens up the marketplace to sell loans - which were
previously classified as jumbo loans - to Fannie Mae and
Freddie Mac.

The jumbo loan market has dried up substantially since
around August last year with the available loans being
more expensive. FNMA and FHLMC have been the major
players in buying loans, this will provide needed liquidity
to an under-served portion of today's market.

The new limit is set to be 125% of an area's median home
price, but the law does not saw which median home price
will be use.

It gives the HUD Secretary up to 30 days to post a list of
median prices and conforming limits. A spokesman for HUD,
said prices will be set via counties, unless there's a
compelling reason to do it differently in certain areas.
The bill caps any increase to $729,750.

The new limits should be posted in early March on
www.hud.gov.

Theoretically, consumers can expect to have these changes
available in the next thirty days. But there are steps that
must occur before programs are available.

One of our major lenders has tried to manage everyone's
expectations by outlining the expected procedures.

First, FNMA and FHLMC will be assessing their internal
impacts to determine the delivery approach they will require
of mortgage lenders and investors.

Second, FNMA and FHLMC must communicate their
requirements to mortgage lenders and investors. This would
include maximum loan-to-value ratios, minimum credit scores,
whether refinances will allow for cash-out and any
number of other variables that will be considered in their
risk-assessment model.

Borrowers need to understand that FNMA and FHLMC are
now taking on some of the risks that the private investors
were previously taking. If a new $625,000 conforming loan
were to default, it would represent the equivalent of 1.5 loans
of $417,000 that could have defaulted.

Third, the lenders - once they have seen the loan programs
and parameters that FNMA and FHLMC have stipulated -
must modify their loan programs to meet those requirements
and make them available to consumers.

Those borrowers between $417,000 and up to the new loan
limit should find it cheaper to get a new loan, compared to
today's jumbo rates. We will have to see what rates are
being offered when the changes are implemented and
available to the public.

The changes are temporary, with a time limit imposed of
December 31, 2008. Congress could choose to extend
the time frame, but any consumer looking for whatever
relief may be available would be wise to act sooner, not
later.

This law should allow for more liquidity in the mortgage
market, and when money is more readily available, interest
rates have the opportunity to come down.

Let's hope that FNMA and FHLMC act quickly, that they
are not too restrictive in their risk assessments, and that
the lenders put the programs into place quickly as well.

Then we can offer more solutions to worthy borrowers who
are looking for relief from their current mortgage predicament.