Expansion of Loan Limits to Help Borrowers

The American Recovery and Reinvestment Act (ARRA)
was signed into law on February 24, 2009. This
act increased the maximum conforming limits for
loans eligible to be purchased by Freddie Mac
(FHLMC) and Fannie Mae (FNMA).

Last year, the Stimulus Act allowed FHLMC and
FNMA to purchase loans above the traditional
conforming limit of $417,000. In San Diego
County, the limit for a single-family home
was $697,500. Some counties had maximums of
$729,750 which was the absolute limit for all
states other than Alaska and Hawaii.

Then in late 2008, the limits were re-assessed,
and the San Diego County limit for 2009 was
set at a maximum of $546,250.

And now, in an attempt to loosen up lending,
and make some more opportunites available to
borrowers, the ARRA is now allowing the higher
of the Stimulus Act limits and the revised
limits for 2009 to be in effect.

So, going forward, the limits for San Diego
County are as follows:

1-family property $697,500
2-family property $892,950
3-family property $1,079,350
4-family property $1,341,350

This means that loans which were previously
categorized as jumbo loans, and whose availability
have been restricted due to lack of investor interest
through Wall St., can now have more competitive
rates and terms. It also means that money is more
available for these loan amounts.

We are awaiting for the enabling regulations to be
formulated through FHLMC and FNMA, and for the lenders
to announce their willingness to create these loans
for ultimate sale to these agencies.

We have some experience with the underwriting guide-
lines for these loans from last year, but there could
be new guidelines, requirements and restrictions that
are different from what was previously established.

Borrowers can expect to see at least three tiers of
loan categories, pricing (interest rates and loan
fees), and guidelines:

Conforming loans: These would be the traditional
loans with a maximum of $417,000. This is the
mainstream product that FHLMC and FNMA were created
to facilitate and that offers the best pricing.

Conforming-jumbo loans: These are also known as
Agency Jumbo and High Balance Conforming loans. This
is what the new ARRA is allowing the increase from
$546,250 to $697,500 in San Diego County.

These loans tend to have higher pricing models, and
have more restrictions than the conforming loans. The
higher pricing and restrictions are indicative of the
fact that there is higher risk to FHLMC and FNMA for
purchasing these loans.

Jumbo loans: These will be the loans above $697,500 in
San Diego County. Availability of funds for these
loans will come from lenders who have the capacity to
create them for their own loan portfolio (meaning that
they do not intend to sell them to other investors), or
who are relying on outside investors to purchase the
loans from the lender.

Because of the losses that have occured in mortgage
investments, we have seen a reluctance of Wall St.
investors to purchase the mortgage-backed securities
that are created from jumbo loans.

This lack of availability has made for a very stagnant
market in the jumbo category, and when funds are
available, the pricing has been very high.

For those of you who have loans between $546,250 and
$697,500 in San Diego County, now would be a good time
to initiate a conversation about possibilities for
improving the terms of your mortgage.

Of course, if you are seeking financing for a new home
purchase, you can now expect better terms for loans
between those two loan amounts.

Give me a call to discuss what may be the best course
of action for you and how to take advantage of the
new lending programs and guidelines.