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.