Mortgage Lending Made Simple

The House of Representatives has passed a bill raising the Fannie Mae Freddie Mac loan limit from $417,000 to $625,000. The bill is on its way to the Senate and President Bush has indicated that he will sign the bill should the Senate pass it.

This is a potentially promising development for home buyers and home owners in high cost areas like the Washington Area MSA. At the current time, conforming loans (i.e. those currently under $417,000) carry interest rates about 1% below jumbo loans (i.e. those currently over $417,000).
If this bill passes, it will be a big benefit to buyers who wish to borrow up to $625,000 or current homeowners who have existing mortgages up to $625,000 who wish to refinance.

Let’s take a look at what this may mean from a dollars and cents point of view.

Let’s take a $625,000 loan.
At 6.375%, the monthly payment for a 30 year fixed rate loan is $3,899.19.
At 5.375%, the monthly payment for the same loan would be $3,499.82 or $399.37 less per month.
In terms of qualifying for a loan, this $399.37 reduction in payment will reduce the income needed to qualify for this $625,000 loan by approximately $1,200 per month.

This will help with a great number of the larger homes in our market and help reverse the downward movement in prices.

While it is too early to predict if HUD/FHA will follow suite, the increased Conforming Limits certainly opens the door for HUD/FHA to follow suit and increase their Limits which would have a far greater impact on more borrowers and areas that are not currently in the High Cost Designated areas of the country.

I am passing this Legislative update along. ?Lets hope we get the FHA Limits
increased, would be a big help in providing minimal down payment financing
for our market.

In an effort to keep you as informed as possible here is the latest on HR
5140, the stimulus package. Note that currently most of the markets/counties
we are involved in are at the top of the limit as it stands today. The
assumption would then be that we would be on the high end of the new limits
but again we would have to wait for the actual confirmation of the
legislation and HUD to determine their piece in a timely fashion. This
legislation if passed is currently only in effect for 2008. I am sure there
will be more information to come.

Legislative Update - Higher loan limits inching toward reality!
Yesterday, the US House of Representatives overwhelmingly passed HR 5140 ??
an economic stimulus package that includes a temporary increase in the
conforming loan limit and the upper threshold for FHA loan programs to as
much as $729,750 in high-cost areas. ?The temporary increase would last only
until the end of 2008. ?The bill would also restrict Fannie Mae, Freddie Mac
and the Federal Housing Administration from guaranteeing or purchasing loans
above 125 percent of the median home price for a given area. ?That means
that the existing $417,000 conforming loan limit for mortgages eligible for
purchase by Fannie and Freddie would not increase in areas where the median
home price is $333,600 or less. ?The problem of course, is that as of right
now, no one knows what the median home price is in different markets because
this data has never been published by HUD!
? Therefore, it would be up to the Secretary of Housing and Urban
Development to determine the median home price for different housing markets
“as soon as practicable,” but no later than 30 days after passage of the
bill, relying on existing commercial data where needed. ?In other words, if
median home prices in your marketplace are $336,000 or less, this bill won’t
really affect you; and there’s no way to tell if median home prices in your
area are higher than $336,000 until HUD publishes this data. ?Nevertheless,
jumbo relief is certainly on the way for places like California where median
home prices are certain to be above $336,000.
? Currently, the loan limit for FHA loan programs is between $200,160 and
$362,790, depending on the county where the property is located. ?The
proposed higher limits for FHA loan guarantees are also set to expire at the
end of this year, unless Congress passes other legislation intended to
modernize FHA programs by introducing risk-based pricing and lowering
down-payment requirements.
? While House leaders thought they had reached an agreement with the Bush
administration to include FHA modernization as part of the stimulus package,
they agreed to continue working on that issue separately at the
administration’s request, the Associated Press reported.
? In order to make higher limits a reality, the next step is for the Senate
to pass the bill and for the President to sign it into law. ?The target date
for final passage set by the White House and Congressional leaders is
February 15, so let?s hope for the best and we?ll be sure to keep you posted
as we have more information.
? Sources and helpful links:
? ? ? ? ? ? ? Inman News
? ? ? ? ? ? HR 5140
? ? ? ? ? ? FHA Loan Limit Search ?? (Current Limits)