Reduced conforming loan limit to hit Monterey County hardest

Barring Congressional action, Monterey County will be California's hardest hit county later this year when the conforming loan limit drops nationwide from the $729,950 limit to a maximum $625,500.

by Broderick Perkins
© 2011 DeadlineNews.Com

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Deadline Newsroom - If you plan to buy a California home that will require a big mortgage, move fast -- if you aren't already too late.

Barring Congressional action, Monterey County will be California's hardest hit county later this year when the conforming loan limit drops nationwide from the $729,950 limit to a maximum $625,500.

In Monterey County, the conforming loan limit will fall nearly $247,000 to $483,000, according to the California Association of Realtors (CAR).

Under the new FHA loan limits, after Monterey County the greatest drop in the loan limit would be Merced ($201,450) followed by Riverside ($164,650), San Bernardino ($164,650), Solano ($157,300), and San Diego ($151,250) counties.

Right now, non-conforming or jumbo loans typically carry a mortgage interest rate a quarter percentage point or more than a conforming loan, resulting in a higher down payment and larger monthly payment, according to Marc Mungaray, a loan officer, at Academy Mortgage in Monterey.

That reduces housing affordability and how much the spread could change is "anybody's guess," he says.

"Generally it's a quarter point but it could go up to a full point," Mungaray said.

Approximately 9 percent of home sales could feel the squeeze in Monterey County, CAR projects, 30,000 statewide.

The conforming loan limit determines the maximum size of a mortgage that the Federal Housing Administration (FHA), Fannie Mae, and Freddie Mac government-sponsored enterprises (GSEs) can buy or guarantee. The GSEs back 95 percent of today's mortgages.

"By reducing the conforming loan limit, thousands of California home buyers will be shut out of homeownership," said CAR President Beth L. Peerce.

"The higher mortgage loan limits are critical to providing liquidity in today’s housing market and are essential to our housing recovery. We urge Congress to maintain the current limits and make them permanent to provide homeowners and home buyers with affordable financing and help stabilize local housing markets," Peerce said.

That's not likely given federal legislators' penchant for budget-balancing efforts that include rolling back housing relief provisions put in place even before and after the Great Recession.

The higher conforming loan limits were part of the Housing and Economic Recovery Act (HERA of 2008 to the GSEs to insure, guarantee and buy more mortgages at a time when private funding froze during the financial crisis.

While some say private banks will pick up the slack, others aren't so sure.

On July 13, 2011, Federal Reserve Chairman Ben Bernanke told the U.S. House of Representatives' Financial Services Committee the private market was set to fill the void when the conforming loan limits on government-backed mortgages are set to expire in October, but at a higher cost to homebuyers.

"As far as Fannie Mae and Freddie Mac are concerned, there is a tradeoff there between supporting the higher priced homes and weaning the housing finance system off of unusual limits it was put under during the crisis," Bernanke said.

"I understand the private sector is taking at least a significant number of the jumbo mortgage market but at a higher cost," he added.

However, CAR said, in anticipation of the expiration of current loan limits on Sept. 30, 2011, Bank of America on July 1 stopped accepting conventional and government applications for loan amounts that will exceed the lower loan amounts.

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Higher conforming loan limits for another year

High conforming loan limits mean homebuyers and homeowners in expensive housing markets will continue to get a break on interest rates when they buy or refinance. Conforming loans come with cheaper rates than non-conforming or so called "jumbo" mortgages, because they are backed by the government.

by Broderick Perkins
© 2010 DeadlineNews.Com

Unauthorized use of this story is a copyright violation -- a federal crime

Deadline Newsroom - In what's at least a year-long reprieve from some higher housing costs, President Obama is expected to sign legislation that comes with a provision to extend the current high-cost-area conforming loan limit through 2011.

The provision means homebuyers and homeowners in expensive housing markets will continue to get a break on interest rates when they buy or refinance.

Conforming loans come with cheaper rates than non-conforming or so called "jumbo" mortgages, because they are backed by the government.

Now that the federal homebuyer tax credit has expired, cheaper rates are crucial to the housing recovery.

Federal lawmakers recently voted to keep the maximum size of loans guaranteed by Fannie Mae and Freddie Mac and the Federal Housing Administration (FHA), for high-cost areas, at the current $729,750 level.

Real estate agents, mortgage bankers, homebuilders, and others, arguing the housing market would suffer with lower conforming limits, lobbied to keep the upper limit in high-priced markets.

The limit applies to areas that include California and New York. Alaska, Hawaii, Guam and the U.S. Virgin Islands get even higher conforming loan levels.

Without the change, the limits would have fallen to about $625,000. The limit was $417,000 before 2008 and remains at that level for most of the country.

"CAR applauds our congressional representatives for their actions to extend the higher loan limits through 2011," said CAR President Steve Goddard.

"Without the extension of the higher loan limits, many California borrowers would have a harder time refinancing homes and obtaining financing for new home purchases," he said.

On September 28, Erate.com reported the average rate for 30-year, non-conforming jumbo loans
came in at an average 5.18 percent. Meanwhile, conforming loan rates averaged 4.51 percent.

Many homeowners carry jumbo mortgages with interest rates in the mid to high 6s. Current conforming mortgages area available for much less to qualified homeowners who pay the standard .07 to 1 point origination fee.

If these homeowners had to refinance to a true jumbo loan of the past, they would be doing so at fixed rates in the low 5's. Even some homeowners burdened with two loans to avoid jumbo mortgage rates could benefit from refinancing both loans to today’s jumbo conforming fixed rate loan.

While borrowers must still qualify under the stiff current guidelines in today's market numerous borrowers are able to refinance to a conventional conforming jumbo loan for less, depending on their area.

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'Jumbo' loans getting smaller

If you need a large home loan, move fast and look hard. Loan limits are getting squeezed on jumbo loans with eased underwriting standards and that could shrink the size of the mortgage your lender will approve for you.

by Broderick Perkins
© 2008 DeadlineNews.Com


Unauthorized use of this story is a copyright violation -- a federal crime.

Deadline Newsroom - Those jumbo loans that came with lower interest rates and smaller downpayments may disappear any day now.

The Federal Housing Administration, Fannie Mae and Freddie Mac earlier this year announced eased underwriting standards for so-called "conforming jumbo loans" of up to $729,750 through December 31, 2008, thanks to a mandate by the Economic Stimulus Act of 2008.

Recently, however, all three agencies said they would roll back that temporary limit to $625,500 in 2009.

Many lenders won't wait for 2009 to roll back the limit, but will soon start, if they haven't already, to apply eased underwriting standards only to the new, lower loan level. Eased underwriting standards included lower interest rates and smaller downpayments than those typically associated with so called "jumbo loans" before the stimulus act.

Beginning in January, the FHA will insure single-family home mortgages up to $271,050 in low cost areas and up to a maximum of $625,500 in high cost areas of Alaska, Hawaii, Guam, and the U.S. Virgin Islands.

The new $625,500 maximum, however, represents a significant increase over the $362,790 limit that was in effect prior to the stimulus package, according to the U.S. Department of Housing and Urban Affairs (HUD) .

According to the Federal Housing Finance Agency (FHFA, formerly the Office of Federal Housing Enterprise Oversight -- OFHEO), Fannie Mae and Freddie Mac will retain their $417,000 conforming loan limit for conventional loans, lower the temporary conforming jumbo limit of $729,750 to $625,500 for certain higher cost cities and counties and a set the maximum loan limit to $721,050, but only for Alaska, Hawaii,
Guam, and the U.S. Virgin Islands.

Image: The Onion.com

Call them "temporary conforming jumbo loans"

On the endangered species list in the mortgage world, $729,750 "conforming jumbo loans" experienced mixed reviews from risk averse lenders who never fully embraced the loans.

Lenders buried under foreclosures, barely opened the doors to offer the loans until months after they were available. The larger the loan the greater the risk. The riskier the loan, the tougher it is for a home buyer to get the mortgage approved.

It wasn't until months after they were allowed, Fannie Mae and Freddie Mac announced they would purchase the larger conforming loans with the same requirements they use to purchase loans at the old conforming loan level.

Fannie Mae and Freddie Mac had also reduced down payment requirements on some loans to as little as 3 percent down. And new FHA loan plans with higher limits also helped put more big loan mortgage money on the market.

But as the economy sank into recession, the jumbo conforming loan at the $729,750 level never really managed a strong toehold.

"In today's environment where access to credit is being restricted, we need to make mortgage loans readily available to households throughout the country, and especially in high-cost areas," said HUD spokesman Steve Preston.

"These new loan limits will ensure FHA can to continue help struggling homeowners refinance into safe, affordable government-insured loans, and allow many first-time buyers take advantage of today's buyers market," he added.

See also: "California Cold To Jumbo Conforming Loans"
And: "Market Warms To Cheaper Jumbos"

© 2008 DeadlineNews.Com


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Broderick Perkins, an award-winning consumer journalist, parlayed 30 years of old-school journalism into a digital real estate news service, the San Jose, CA-based DeadlineNews Group -- DeadlineNews.Com, a real estate news and consulting service and Web site and the Deadline Newsroom, DeadlineNews.Com's news back shop. Perkins is also a National Real Estate Examiner. All the news that really hits home from three locations -- that's location, location, location!

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Market Warms To Cheaper Jumbos

Much cheaper rates on new conforming jumbos is just what the market needed to encourage more buyers to buy and existing homeowners to refinance and save. See also: "California Cold To Jumbo Conforming Loans."

by Broderick Perkins
© 2008 DeadlineNews.Com

Deadline Newsroom - Think about a mortgage do-over.

You could be out hundreds of dollars a month if you signed for a large home loan last month.

This month, qualified home buyers and those refinancing their mortgage, are getting jumbo conforming loans with an interest rate nearly a full one percentage point cheaper than it was just weeks ago.

On a $500,000 mortgage that's a savings of more than $300 a month. On a $730,000 mortgage a whopping $500 a month. That's a lot of gas money.

The Economic Stimulus Act of 2008, temporarily raised the maximum amount on conventional conforming loans from $417,000 to about $730,000, hoping that would prompt lenders to lower rates on the larger mortgages to levels for smaller mortgages. Initially, risk averse lenders, buried under foreclosures, were not convinced.

In recent weeks, however, Fannie Mae and Freddie Mac announced they would purchase the larger conforming loans with the same requirements they use to purchase loans at the old conforming loan level.

That opened the flood gates on lower rates for bigger mortgages. Whoo hoo!

Fannie Mae and Freddie Mac have also reduced down payment requirements on some loans to as little as 3 percent down. More whoo hoo!

That move, along with new FHA loan plans, also put more mortgage money on the market.

And with home prices falling in many regions, happy days are almost here again for some housing consumers who can now drive a hard bargain with both sellers and lenders.

So here's the burning question: If you got a mortgage a month or so ago with the higher rate, should you refinance already?

Yes. Especially if you can get a no-point, no-cost refinance, says Quincy Virgilio, broker owner of Realty World CA Property Network in Campbell, CA.

"It is definitely a viable option to look into," said Virgilio, who is also president-elect of the Santa Clara County Association of Realtors.

Eric Nelson with the Honte Group, also in Campbell, agrees.

"If you are going to save $400 a month and it costs $4,000 to do the deal and they can recoup that cost in a year, we would recommend that. If they are going to save $400 a month and it costs $8,000 and they will take two years to recoup the cost, we probably wouldn't recommend it," Nelson said.

"Look for a no-cost, no-points loan, but make the simple calculation on how much you are saving and how much it is costing," and how long you'll stay in the home, Nelson added.

Sit down with a mortgage broker, loan officer or financial planner and do the math.

© 2008 DeadlineNews.Com

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Broderick Perkins, an award-winning consumer journalist of 30 years, is publisher and executive editor of San Jose, CA-based DeadlineNews.Com, a real estate news and consulting service, and the new Deadline Newsroom, DeadlineNews.Com's new backshop. In both cases, it's where all the news really hits home.

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California Cold To 'Jumbo Conforming' Loans

So far, jumbo conforming loans have had no greater-affordability effect on the housing hangover. Only more time will tell if cheaper jumbo loans will emerge. See also: "Market Warms To Cheaper Jumbos."

by Broderick Perkins
© 2008 DeadlineNews.Com

Deadline Newsroom - The larger the mortgage, the riskier the loan.

The riskier the loan, the tougher it is for a home buyer to get the mortgage approved.

That's a basic lending rule of thumb and it appears even federal intervention can do little to quickly change that fact.

Months after federal law, Economic Stimulus Act of 2008, temporarily raised the maximum amount on a conventional conforming loan from $417,000 to about $730,000, risk averse lenders have not been convinced to substantially lower interest rates on the larger loans.

The conforming loan adjustment was supposed to generate more affordable interest rates on the larger, so-called "jumbo conforming" loans. The hope was that the larger jumbo conforming loans would have nearly the same interest rates as the old conventional conforming loans.

Then, as the theory went, the lower rate on the larger loans would have encouraged more consumers to buy homes, or enable them to refinance to lower interest rate loans, especially in high-cost regions like California.

That has not happened. Yet.

Instead, in Silicon Valley, for example, the market has generated a new tier of jumbo conforming loan interest rates nearly a full percentage point higher than old conventional conforming loan rates.

But that's because the new jumbo conforming loans are still larger loans and even with federal backing, in today's credit crunched economy, the larger loans pose a risk too great for lower interest rates.

Federal government-sponsored Fannie Mae and Freddie Mac buy conforming loans and repackage them for sale in the secondary market of mutual funds, pension funds and investments around the globe.

But skittish investors demand higher yields (hence higher rates for the larger loans, compared to the smaller loans) because mortgage investments involving smaller loans (largely due to their toxic nature) have already ripped into their returns.

There is fear in the market.

The untested assembly-line production and mass-marketing of subprime and nontraditional mortgages was a disaster for both investors and homeowners. Right now investors simply aren't feeling so lucky about another untested brand of mortgage involving still larger loans.

In addition to higher interest rates than hoped for, the jumbo conforming loans also contain tougher underwriting requirements that demand higher credit scores and stiffer qualifications than conventional conforming loans.

Connie De Groot, a broker associate in Coldwell Banker's top Beverly Hills office, says jumbo conventional loans with lower rates are inevitable, just not over night.

"I don't understand why everyone is expecting things to change overnight. It took years to get to this point," she said.

De Groot says there's also limited demand from the public for a loan product with an unknown track record. The market simply needs time to embrace the new loans.

How much time?

Six months to a year, says De Groot.

"I'm very convinced and hopeful that with time people will understand the new options and take advantage of them and rates will go down," she added.

She suggests home shoppers and those seeking a refinanced mortgage ask about the new jumbo conforming loans as a part of a prudent approach to shopping around for home loans.

© 2008 DeadlineNews.Com

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Broderick Perkins, an award-winning consumer journalist of 30 years, is publisher and executive editor of San Jose, CA-based DeadlineNews.Com, a real estate news and consulting service, and the new Deadline Newsroom, DeadlineNews.Com's new backshop. In both cases, it's where all the news really hits home.

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