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.