We’ve received a lot of emails regarding both the amount of the conforming loan limit increase ($729,750 max), and the time this increase will be effective (July 31st 2007 to Dec 31st of 2008). So if you’re confused, you’re not alone.
Kelly McCray provides the following:
“The information coming out on this issue is confusing right now. The bill itself is not written well and the industry is buzzing with conflicting interpretations.
1. The HUD median home price for San Francisco is 650,000, the new law sets the conforming limit for us at 125% of that, but not higher than 730K, (principal loan amount) so we will be able to go to the limits.
2. The time frame (and this is the confusing part) is that the GSE’s can buy loans that originated from July 2007 through December 2008. So, if we closed deals in the last 7 months that could benefit from this development, we could refinance them. What I don’t know is if I can refinance a previously jumbo loan into a conforming loan if I closed in January 2007, this doesn’t make sense.
3. There may be some hits for higher loan amounts, but this will have to be worked out and there aren’t any answers yet. Today, a conforming loan of $417K, 30 year fixed is 5.5, if they hit us with a .5 adjustment for loan amount then that makes the rate 6%, this is almost a full point lower than the current jumbos.
4. There is no answer as to how long this will take to implement and get out to the lenders, I can’t even guess.
If buyers are hesitant about the deals they are making now, if they close thinking they can refinance when this gets sorted out, the requirement for holding title on a refinance is at least six months, they would have to wait until August counting forward from March.”
–this just in: Conforming Loan Limit approved by Senate [theFrontSteps]
I’d like to know if two, three and four unit owner occupieds can get the same sort of graduated increase they received under the old limits. Nobody seems to know that one either.
Kennykohlmyer – that is an excellent question, but there is no mention of it inthe body of the bill. I will keep this blog posted, there are many things that still need to be worked out. A clarification came out over the weekend from my friends at Mortgage Market Guide, that the time frame as is spelled out as starting in July 2007 is meant for the lenders who were unable to sell the previously jumbo loans on the secondary market, and may still have them sitting there. The intent is for those loans to be able to be sold to Fannie Mae under the new guidelines. I will be able to secure financing for loans, under the new conforming limits, no matter when they orginated.
Kelly,
Im still confused. Are you saying that since I bought an unit in 2006, I cannot refinance into the new loan program? I assumed everyone would be able to use the new loan limits as long as their property still appraised for the value of the loan.
So everyone who bought before July 2007is stuck with the jumbo loans?
Thanks for the help.
JK, I apologize if this was confusing. In the actual verbiage of the bill there is a date restriction, but it will not be applicable to people needing to refinance no matter when they closed their loan. So, yes, you can refinance your loan. We are expecting the new loan pricing to come about 30 days after the final passing of the legislation. Bush is expected to sign off tomorrow, so we’ll be anxiously anticpating the new rates in March. If you are thinkng you might want to take advantage of this it wouldn’t be a bad idea to contact your friendly neighborhood mortgage gal to get paperwork in order. For so many in the Bay Area this is going to be big relief.
It has nothign to do with refinancing. The dates that are given refer to the agencies (fannie mae and freddie mac) being able to purchase loans that were created from that july date into the conforming loan product. This lets more paper be moved from banks and helps to decrease defaults because of lower rates. It effects the new deals because you are able to fit more houses and more products into conforming whether it be a refinance or purchase. So yes you can do basically any transaction using these new limits…
can either of you tell us what this really means in terms of regular folks like me?
lets say you had a 1.025 mil loan before and after the new limit. how much could you expect to save on a 30 year fixed at say 6 % ?
thx
James – All the buzz and chatter is focused on loan amounts at $729,750 and below. Loan amounts that are over this amount are called jumbo loans, the rates on jumbo loans may come down a little, but for now it’s all a guess.
thanks kelly. the delta in the old rate to stay conforming and the new one doesn’t seem like a big deal nor willl it matter much when you need a jumbo anyway. i was just looking for that clarification.
James – it is going to be interesting to see how this plays out. Today is the CAMB tradeshow (california association of mortgage brokers) there should be a lot of talk going on about this issue. for years we have been trying to get the loan limits raised in California, one of our biggest opponents were the mortgage bankers – because they make a lot of money on jumbo loans, that until now were anything over 417K, and frankly there has been a lot of competition for the jumbo money. We will see how having the loans between 417K and 730K under fannie mae MBS’ effect the new jumbo loan rates.
that is really interesting and not surprising. have you heard about anyone going to jail yet? i had heard back in august that the fbi had 5 full time people assigned just to investigate some of the east bay mortgage brokers practices.
i’m sure the show will have quite a different aura about it this year.
Hi Kelly,
Thanks for the helpful article. I am still confused as to when this will go into effect (i.e., how soon can one look to refinance a jumbo into a conforming?). In the article itself it seemed as if we would have to wait until August, yet in one of your comments you mentioned looking for the new rates in March — can you please clarify that?
Also, I currently have an interest only loan of $650k at 5.25% with 4 years left before the rate becomes adjustable. Am I correct in understanding that these changes are a one-time offer only for 2008? I am not ready for the huge jump in mortgage payments that having a straight-up fixed rate 30 yr loan would entail, yet I feel like it would be incredibly stupid NOT to take advantage of this as down the line I will certainly be paying for it if I don’t. Is my thinking correct here? What would you recommend I do and how much do you think I could ultimately save? Do you think loans like 10 year interest only fixed rate loans (where after 10 years you keep the same rate but now pay principal AND interest) will be available and more affordable with the new conforming loan amounts?
And how high must one’s FICO score be in order to qualify for any of these new loans? I’ve heard that Lenders are really skittish and will only offer good loan rates to those with FICO scores above 700 — I’m very close to that, but not there just yet… Are these rumors true?
Thanks in advance for any advice you can offer!
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