The Stimulus Plan - Conforming Loan Limits. This is a hot topic!
I want to try (emphasis on “try”) to tell you about this, but stay tuned, because all of this Conforming Rate information is confusing and changing daily. As most of us know, The Economic Stimulus Plan has been signed by President Bush and is now law. Breathe a deep sigh of relief here! Well, all that glitters is not gold. After a discussion today, with our Mortgage Guru, Tim Sibley of First Capital Mortgage, I came away informed and slightly confused. Not Tim’s fault. Tim shared the following memo with me. Of course, I am going to share the memo with you. Read it for yourself and see what is being given out to mortgage broker’s today. Everyone is learning about the new guidlelines. The missive was sent to him by one of his lenders. Of course, Tim has some thoughts and observations on the whole thing. But wait, I’m getting ahead of myself. Let me give you some more of the facts.
The GSE’s (Government Sponsored Entities ~ Fannie Mae and Freddie Mac) and HUD (Department of Housing and Urban Development) now need to determine how they will implement these changes and communicate the product and process guidelines to mortgage investors and lenders. While mortage companies are working diligently to release new products as soon as possible, most of them must wait for formal communication of the guidelines before finalizing the approach to the new legislation. The new conforming rate for Newport Beach real estate (probably most of Orange County) will be $729,750. I don’t know about you, but that seems like a strange number to settle on.
One of Tim’s observations – Some of the programs just don’t make sense. For example, one product, a 5-Year ARM, has interest rates into the 8% range. Whoa! That’s getting up there. I thought this program was supposed to save us money. There are better programs around without having to pay such a steep rate. The names of these programs are interesting; Conventional Conforming, Agency Jumbo, Conforming Jumbo and, old faithful, the Jumbo. Each will have it’s own interest rate structure. I would say this is where you really need an expert to guide you through all this muck.
The following is a memo from one of Tim’s lenders…it does make for interesting reading. The status is changing daily. Enjoy…
For Conventional Conforming Business
Here’s what we can tell you thus far for Conventional Conforming loans… again nothing is final until Fannie Mae/Freddie Mac and HUD make their formal announcements.
Fannie Mae and Freddie Mac need to consider many factors as they determine how to implement the new products. Once they have, they will send a formal announcement with the details. The general target for release by the GSE’s is the beginning of April. Because it is a temporary measure, this will not be as quick and easy as past increases to the maximum loan limits that were tied to home price appreciation.
Below are some high level details that Fannie and/or Freddie have provided to date:
- The new legislation sets maximum loan amounts based on calculations tied to the HUD Median House Price amounts:
- The maximum loan limit will be increased to 125% of the HUD Median House Price based on Metropolitan Statistical Area (MSA) up to 175% of the current conforming limit, never to exceed $729,750 for a single-family property
- The new loan limits will not be uniform across the country
- HUD is required to publish revised median house prices to implement the legislation within the next 30 days
- Product parameters will be more restrictive than conforming products:
- Full Documentation and Full Appraisals will be required
- 660 minimum credit score
- 90% LTV maximum for primary residence purchases and rate/term refi’s (lower LTV limits for investment properties, second homes, and cashout refi’s)
- 0×30 on all mortgage debt in past 12 months
- 12 months minimum seasoning for cashout refinances since prior refinance
- Full project review required on condos
- The declining markets policy will be in effect (5% reduction of maximum LTV / CLTV for properties located within a declining market)
- Product types will likely be limited to 5-yr ARMs (P&I and IO), 15- and 30-yr fixed P&I products
- Full documentation means that variances such as VIP will not be eligible for loans within this product
- There will be special Pricing and Delivery requirements
- Pricing will not be the same as current conforming product (we expect pricing to be somewhere between current jumbo and conforming pricing)
- Because of the special requirements, PHH will release new products to identify these separately
Please note: the abovementioned product parameters are based on preliminary guidance only and are subject to change by Fannie Mae and/or Freddie Mac.
For FHA Business
We have not received any information as to whether or not HUD will impose any additional LTV, credit, or documentation requirements beyond standard guidelines for FHA products. As we become aware of these details, we will let you know.
Regarding HUD Sales Price Limits, the following describes how HUD derives their limits and how this new Law impacts these calculations.
For most areas, FHA limits are set at 95% of the median home price for the area. However, there are Floor and Ceiling limits that are applied to low and high cost areas.
- Floor: The 1-unit “Floor” will now be $271,050 (currently $200,160)
- The “Floor” is derived from calculating 65% of the conforming limit for 1-unit properties (previously calculated using 48%)
- The “Floor” is used for areas in which 95% of the median home price is less than $271,050
- Ceiling: The 1-unit “Ceiling” will now be $729,750 (currently $200,160)
- The “Ceiling” is derived from calculating 175% of the conforming limit for 1-unit properties (previously calculated using 87%)
- The “Ceiling” is used for areas in which 95% of the median home price exceeds $729,750
As is the case for GSE eligible loans, exact limits per MSA cannot be determined until HUD releases the latest Median Sales Prices per MSA and confirms each MSA’s maximum loan limit.
As we find out more, we will send you updates…
In the interim, if any Real Estate Offices or Clients ask, you can let them know that we have been working on this for some time now, and we will react quickly once the GSE’s and HUD make their formal announcements.
~End of Memo~
You can see from the above memo, even the lenders have not figured out all of this stuff.
Beyond the new Conforming Loan Limits, I know, from talking with Tim, loans are being made. There are great rates and programs available. I would suggest and strongly advise, in these uncertain financial times, seek out a true mortgage professional, like Tim Sibley, to assist you with obtaining a mortgage. Give Tim a call at: 949.718.1511. It will be a smart move and probably will save you a lot of money.
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