A Jumbo Question: Conforming Loan Limits

A Mortgage Porter reader asks a very timely question regarding the proposed conforming loan limit:

"I just spoke to one of the major lending institutions and he recommended that if I can wait 3 – 4 weeks we may see a change in the non conforming guidelines such as amount that is normally set t $417,000 jump to either $620,000 or $630,000. 

Would you have any information on these possible changes and time line?"

Many people are full of questions regarding what’s going on with the conforming loan limit.  Different figures and stats are being quoted from various sources.

The Certified Mortgage Planning Institute issued this statement yesterday:

CMPS 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)

Should You Refi?

EDITORS NOTE: This post was written back in 2008 and mortgage rates have obviously changed 🙂  If you would like a mortgage rate quote based on current rates for your home located in Washington state, click here.

Last week I did a quick alert on the 30 year fixed hitting high 4’s-low 5s and I received an excellent comment from Sandy:

“…With all the costs and everything of refinancing, how much lower do rates need to be than what you currently have, before it makes sense to think about refinancing? I am just curious, as we have a 30yr fixed loan that is in the low 5s.”

You would think this is a simple question with a simple answer.  There’s much more to it.  Here are some things to consider if you considering refinancing your mortgage:

How long do you plan on staying in your home?   There are cost to the mortgage even if you’re getting a “no cost mortgage” where the hard costs are actually financed into the interest rate.   If you cannot break even on the cost before you plan on selling or refinancing again (low 4’s to high 5’s would be unlikely), then refinancing for the purpose of reducing your rate may not make sense.

Do you have an Adjustable Rate Mortgage?  If you’re going to retain your property longer than the remaining fixed term on the ARM (adjustable rate mortgage), you may want to consider refinancing into a fixed mortgage.

Do you have private mortgage insurance or a second mortgage?   Sometimes if someone has pmi or a piggy back second mortgage, refinancing may make sense if the can restructure the existing mortgages into one and if the blended rate of their existing mortgages are higher than what the new mortgage would provide.

Do you have a Jumbo mortgage?  Depending on what your mortgage balance is and your current rate, it may make sense to restructure your mortgage into a conforming mortgage.  This can be done by paying down the mortgage at closing or using a second mortgage, such as a HELOC or fixed second.

Would you like access to your home equity?   Refinancing can provide cash for home improvements, college tuition, debt consolidation, or what ever else you wish to do with your equity.   Most cash out refinances are priced higher than a rate term refinance.

Are you getting a divorce or separation?  If you have a mortgage with another person and the relationship is dissolving; you will need to refinance in order to remove the one who’s not staying in the home from the mortgage.   Divorce decrees and Quit Claim Deeds do not remove someone’s liability from the mortgage.  Plus, it’s a huge risk for the person who is no longer staying in the home.   Refinancing to remove an ex-spouse from the mortgage and to cash out their equity is not priced as a “cash out” refinance–it’s treated as a rate term refi.

Are you concerned about your home value declining?  Refinances are priced based on loan to value and there are underwriting guidelines that limit how high a loan to value may be.  In “declining markets” lenders have additional restrictions on loan to value lending limits.

Here are some quick “Do’s and Don’ts” for your refinance:

  • Do get a good faith estimate from your Mortgage Professional.  If you have not heard from your Mortgage Professional since you closed your loan or over the past few months, you might need a new one (they could be out of the business).
  • Do not rely on a simple “rate quote” without knowing the costs involved.
  • Do complete a loan application and provide the information your Mortgage Professional needs to lock in your interest rate.
  • Do not try to “play the market” and get the lowest rate…it’s far too volatile in this climate.   If the rate makes sense, lock it!

Must reads:

Picking your next mortgage by rate shopping?   You might as well be playing liars poker.

I’m happy to adopt your ARM.  No refi required.


Closer to Higher Conforming and FHA Loan Limits

Today Pelosi and Paulson announced bits and pieces of the Economic Stimulus Plan which includes temporarily increasing the conforming loan limit (currently $417,000) and FHA’s loan limits (vary by county).

Here’s what I understand so far:

  • Loan limits would last until December 31, 2008.
  • Both Conforming and FHA loan limits would be based on 125% of the local median home prices up to $730,000 (this is according to CNBC).
  • It’s also reported that both loan limits may be increased to $625,000.

This is expected to be approved by Bush very quickly…stay tuned!

Update January 24, 2008 2:00 p.m.

I just received this memo:

For Immediate Release
January 24, 2008


We are very disappointed in the proposal to increase the conforming loan limit as we believe it is a mistake to do so in the absence of comprehensive GSE regulatory reform.  To restore confidence in the markets we must ensure that the GSEs’ regulator has all the necessary safety and soundness tools.

Yesterday Chairman Dodd talked about moving a GSE reform bill early this year.  We are ready to work with him and the Senate Banking Committee.  We will also be working with Fannie Mae and Freddie Mac to ensure that any increase in the conforming loan limit moves through their rigorous new product approval process quickly and has appropriate risk management policies and capital in place.

Washington homes still show appreciation, BUT…

We are lucky that Washington state is one of the few in the nation to still be reporting that our homes are appreciating.  BUT…please don’t let that allow you to have a false sense of security with the value and equity in your home.   These reports are based on information that lag month(s) behind what’s actually going on. 

Other reports show that we are at a 16 year high for unsold homes (listings).   With this much inventory and few buyers due to a reduction in available mortgage programs (subprime, alt-a are reduced if not nil and jumbos have higher rates than before August), we may very well see a change in the appreciation stats we have been benefiting from.     The Seattle/Bellevue area has a high rate of "jumbo" priced homes (jumbo mortgages are loan amounts higher than $417,000).

If you currently have an ARM or bought your home with 100% financing a few years ago, you need to check with your Mortgage Professional to see how your credit is and what actions you should take (if any) right now (even if your ARM is not adjusting for two years).

Consider how you would be impacted if:

  • Your home value does not appreciate and instead, the value stays the same (stagnant) or depreciates?
  • Your adjustable rate or balloon mortgage adjust and you cannot afford the new payment?
  • Your interest only feature on your mortgage is over and you now have to make a fully amortized payment?
  • Your home does not appraise high enough to have the loan to value required for a refinance (loan to value guidelines are more strict now.   FHA has one of the best programs allowing a 95% LTV.  However, loan limits apply).

I don’t want to sound like a "Chicken Little" or cause panic.  I do want to make sure that you’re prepared for worse case scenario and hopefully it doesn’t happen.  Maybe Seattle will get away with just getting bumped by the national housing bubble.    Who knows?

Appraised values are based on what other homes like yours in your neighborhood recently have sold and closed for — not trends and not what other homes in your area are listed for.   If homes are selling for less because there are fewer buyers, this will directly impact your loan to value should you need to refinance out of a non-fixed rate mortgage.

Many home owners with prime and subprime ARMs that will be adjusting over the next few years will see their payments increasing from 20-50%.   It is your responsibility as a home owner to know your mortgage and to be fiscal and credit wise.     Please do contact your Mortgage Professional today (I know I’m repeating myself…but it is that important) to develop your personal "Mortgage Exit Strategy".  The more time you have to prepare, the better off you should be.

How could CNBC use Bankrate as a reference?

I typically have CNBC on while I’m working.   This morning, I watched in dismay as Diana Olick of CNBC used Bankrate to compare jumbo rates.   What on earth was she thinking? 

JumboBankrate does not have a sterling reputation for posting accurate mortgage rates.   In fact, they settled a lawsuit from their advertisers (the mortgage companies who are listed at Bankrate’s site are paying to post rates) using bait and switch with the rates they are promoting.

I just visited Bankrate for a jumbo mortgage using 20% down in Seattle.  Here’s an example of actual rate quotes I received priced at zero points/zero origination:

Lender 1:  APR 8.017% – Rate: 8.000% – APR Fees: $815

Lender 2:  APR 7.428% – Rate: 7.250% – APR Fees: $8740

Lender 3:  APR 8.200% – Rate: 8.125% – APR Fees: $3500

Lender 4:  APR 6.787% – Rate: 6.625% – APR Fees: $8278

Lender 5:  APR 9.855% – Rate: 9.875% – APR Fees: $410

How can there be such a variance in rates that are priced at zero points and zero discount?  Check out the closing costs shown as APR Fees…try telling me points aren’t factored somewhere in with Lenders 2 and 4.   It’s misleading and this is similar to the example used on CNBC this morning.  Worse, CNBC did not include the fees when they were showing the rates.   Good drama, bad reporting.   

The media is digging the mortgage crisis.   They are sensationalist who thrive on bad news.   Yes, we are in historic times with the mortgage industry.  This is why it’s so important for consumers to select qualified mortgage professionals instead of the lowest rate on they believe they’ve found on the internet.