Raising Loan Limits May Not Help

Ok we have been talking about this for the last several weeks and here is the latest from Realtor Magazine online. Now don’t get to excited by the news beacuse it may not help, I’ll tell you why at the end of the story. I have put the paragraph from Realtor.org in quotes and then see my comments at the end.

“Last week, President Bush signed into law a $152 billion economic stimulus bill that includes temporary increases in loan limits for the government sponsored enterprises (GSEs) — Fannie Mae and Freddie Mac — and the Federal Housing Administration until Dec. 31. But what does this mean for you and your clients?

The NATIONAL ASSOCIATION OF REALTORS® launched a new resource Web page, What Economic Stimulus Means for REALTORS®, devoted to educating you about the new loan limits, which loans are eligible, and the implementation of these temporary limit increases.

NAR has developed estimates of the FHA and GSE single-family loan limits by state and county so that you can get a sense of how the loan limits will rise in your markets.
“The importance of immediately implementing the new limits cannot be overstated,” said NAR President Richard Gaylord last week in a public statement. (Listen and watch Gaylord’s video podcast on the topic at REALTOR.org). “Mortgage markets throughout the country need liquidity. Our research indicates that the increased FHA loan limits will help an additional 138,000 Americans achieve the dream of homeownership and will allow nearly 200,000 homeowners to refinance and potentially keep their homes.”

The FHA limit will increase to as much as $729,750 in high cost areas (to 125 percent of local median home prices). The GSE limit will jump to $729,750 for loans; currently Fannie Mae and Freddie Mac loans are capped at $417,000.

Eligible loans from FHA include mortgages that were issued for credit approval on or before Dec. 31, 2008. GSE loans that are eligible include loans that originated after July 1, 2007 to Dec. 31, 2008.

The U.S. Department of Housing and Urban Development is required to publish the new mortgage limits by March 14; the limits will be effective for FHA immediately upon publication.”

Ok, now the bad news! If you ask those in the know and around the mortgage industry these higher loan limits may not help those seeking conventional loans. You see even though a lender can write a conforming loan up to 729K there may not be a secondary market to buy it. You see in todays mortgage world you have to have a group of investors to buy mortgage backed securities. Those Wall Street Investors are not sure whether or not they want to buy conforming loans up to 729K. Bottom line if there is no secondary market to buy the paper on these loans it won’t matter that the government raised the loan limits.

FHA is another story. Those first time homebuyers looking to buy more home will really benefit from higher loan limits and since FHA is backed and insured by the government we don’t have the Wall Street issue. If you are still confused call me and we’ll talk about how it may or may not impact your situation.

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