The Housing Market might finally have some Good News. Just a few days ago, the House and the Senate passed H.R. 3081. This extension allows Fannie, Freddie, and FHA to loan in High Cost areas without charging extremely high rates, formerly known as jumbo or super jumbo mortgages depending on the size of the loan amounts.
So what is this good news? The conforming loan limits for Fannie, Freddie, and FHA remain at $417,000. Any loan over $417,000 would fall into the next category, which many just call Jumbo loans. Because of the new extension, these loans can still be sold on the secondary market up to $729,750. Which means that the loan guarantee and insurance programs can continue backing these loans in markets with the highest cost of living. Without the extension, these loan amounts would fall under such terms as true non-conforming loan limits which in recent years have come with a much higher cost to the borrower. The conforming loan amount of $417,000 would also have reverted back to the 2009 limits. The impact of that would mean a $400,000 loan would have been more expensive and sometimes not allowed by FHA depending on the state and the county limits.
Conclusion: With a struggling economy, this opens up borrower access to affordable long term fixed rates. The cap of $729,750 is extended to September 30th, 2011. Without going through, it would have expired at the end of this year, and resulted in increased interest rates. How much of an increase you ask?
Example : On a FHA loan right now, you are looking at about an extra 1.5 points more for any loan over $417,950 to $729,750. If one didn’t want to pay the extra 1.5 points, the rate would be about another 1/2 percent higher. In many cases, the higher the loan amount, the more points or rates would drop. Why? It’s called “profit margin”. If we were to keep the playing field leveled, that each loan has the same profit margin, then as mentioned, the cost of the rate should decrease some.
If these loan limits weren’t extended, rates could climb through the roof and the guidelines could become additionally strict. I base this opinion from 2007 when we didn’t have these loan limits extended. It was a much larger risk on the secondary market for private investors. Another impact was the fact that there was no funding from the government to back such risks and higher loan limits. In 2007 and 2008, the rates on such loan amounts in these higher rate ranges were about 1.25% to 1.75% higher. This could have definitely made the process of home ownership more cumbersome for the average person living in high cost areas such as New York City, San Francisco, and similar markets.
For such loan limits, here are some links:
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Copyright © 2011 by Jeff Belonger of Infinity Home Mortgage Company, Inc