New Conforming Limits Announced

Every year about this time, FHLMC (Freddie Mac) and
FNMA (Fannie Mae) adjust the limits on loans that
they will purchase from lenders.

These are called conforming loans because the loans
that are created for purchase by FHLMC and FNMA are
underwritten to a standard that conforms to their
guidelines. Mostly, these loans are for 30-year
and 15-year fixed rate loans.

The new limits for 2009 for San Diego County are:

1-family home $546,250
2-family home $699,300
3-family home $845,300
4-family home $1,050,500

The limit that was set for 2008 was $417,000 for a
1-family home. These new limits reflect a recognition
that San Diego needed a higher limit so that our market
could be better served.

You may recall that the Stimulus Act that was passed
earlier this year allowed for a temporary increase in
the loan limits that is scheduled to expire December 31,
2008. In San Diego, the temporary limit was $697,500.

There was some speculation that Congress may have
extended this temporary limit past the end of the year,
but the announcement of the new limits seems to put
this speculation to rest.

The lenders, for the most part, have already begun to
accept loan requests using the new loan limits.

What this means for you is that larger loan amounts
can now be eligible for the lower interest rates and
fees that conforming loans offer.

Loans above the conforming loan limits are known as
jumbo loans, and instead of these loans being sold
to FHLMC and FNMA (they are not eligible because of
the loan size) they are sold to investors.

These investors usually purchase these loans through
Wall Street when the jumbo loans are packaged into
bundles known as Mortgage-Backed Securities (MBS).

Recently, there has not been any investor appetite
for purchasing jumbo loans. This is because investors
purchased MBS in the past that included many loans
that were rated as good risks that turned out be much
higher risks.

The investors lost money in these MBS because the
quality was not what it was advertised and promoted to
be.

Until the investors are satisfied that the quality of
the loans that are bundled into these MBS are rated
fairly and the interest rates are commensurate with
the risks, they will not provide funds that flow
through the lenders to make jumbo loans.

So, at the present time the enhancements in the
conforming loan limits allow us to serve a larger
segment of the market at the most affordable terms
that are offered.

Keep in mind that there are 30-year jumbo loans that
are available where the interest rates are fixed for
the first 3, 5, 7, and 10 years. These have been
effective mortgage solutions and have been worthy of
consideration.

When 30-year and 15-year fixed rate jumbo loans are
offered at reasonable and competitive rates again,
we can then have a fuller menu of resources to serve
the entire market.

Please get in touch with me so that we can see how
these tools can be of benefit to you.

Update On The Agency-Jumbo Loans

When the Stimulus Bill was passed earlier this year,
it included a provision for FNMA (Fannie Mae) and
FHLMC (Freddie Mac) to purchase loans above the
conforming limit of $417,000.

This provision allowed for loan amounts up to
$697,500 in San Diego County (up to $729,750 in some
counties). It has an ending date of December 31, 2008.

Some of our lenders have stipulated that they want
these loans closed as early as December 1 to December
15, so that they have time to finalize the sales of
these loans to FNMA and FHLMC.

There is still time to process loan requests and meet
some of these deadlines for this loan program. It will
take everyone pulling in the same direction to handle
it as efficiently as possible.

But, there is always the chance (and many of think of
it as likely) that Congress will extend the date and
establish a new conforming limit.

Now that the elections are over, we can hope that
Congress can get back to doing the work for the people
and facilitate an extension. A new loan limit that
has been floated is $625,000, but we will have to wait
and see if Congress acts and to what degree.

If Congress does extend the expiration date, it will
remove some of the urgency that we are facing on the
mid-December deadline.

When the Agency-Jumbo loans were first announced, we
had high expectations that they would allow borrowers
to obtain jumbo loans at conforming interest rates.

As the shake-out occurred, conforming rates behaved in
a normal fashion, but jumbo rates skyrocketed. This
was because investors were no longer willing to buy
financial instruments that were backed by high-balance
loans. The investors that were willing to engage
demanded higher rates of return in exchange for the
higher perceived risk.

What developed was conforming rates that went up and
down in relation to market forces. Jumbo rates were
very high. And the Agency-Jumbo loan program had
rates that stayed in the middle. Currently, the
Agency-Jumbo rates are marginally above the conforming
rates.

The adjustment that FNMA and FHLMC have made, instead
of having interest rates reflect the increased risk, is
to be very stringent on the qualification process.

The good news is that the guidelines are pretty well
defined, so that we have a good opportunity to know
the likelihood of your request being approved.

If you have an interest in this loan program, give me
a call so that we can strategize about what it takes
to get things done for you.