February 13, 2008
If Lowering Rates Isn’t Working, Perhaps Increasing Limits Will
President Bush is expected to sign the economic stimulus bill this afternoon which will likely raise the conforming loan limit in San Francisco to $729,750 (at least “temporarily”). Don’t expect the new limits to take effect for at least 30 days or for the first closings to occur until a few weeks after that.
And in terms of the actual impact on mortgage rates, Julian Hebron of Residential Pacific Mortgage offers one perspective:
There has always been tiered pricing in the Jumbo market. Rates on Jumbo loans from $417k to $650k can be lower than rates on loans from $650k to $1m, and so forth as loan amounts rise into the ‘Super Jumbo’ realm above $1m. Early lender chatter is that when conforming limits rise, we may see higher rates on the ‘Super Conforming’ tier from $417k to $729k.
We also may see rates on all conforming loans rise as a result of the new loan limits. Right now, conforming 30yr fixed rates are about 1% lower than jumbo rates. Conforming 5yr, 7yr and 10yr ARMs are about .5% lower than jumbo rates. If we had a so-called Super Conforming pricing tier, or if conforming loan limits rose in general, expect the benefit of a new Super Conforming versus a jumbo to be cut in half or worse. This might not happen, but such adjustments are a normal part of open market pricing, so just be aware of it.
As always, only time (and the traders) will tell.
UPDATE: Bush has signed the bill.
UPDATE: In response to a reader's question about timing, keep in mind that the Secretary of Housing and Urban Development now has 30 days to establish official median home prices for the high cost areas (the first step in calculating the new conforming loan limits) and updated underwriting guidelines still need to be debated, drafted and distributed.
First Published: February 13, 2008 9:46 AM
Comments from "Plugged In" Readers
When an investment bank sells jumbo mortgages, it pools them together, pays an insurer, and they sell the pool to investors.
When FM/FM sells jumbo mortgages, it pools them together, takes a cut as the insurer, and they sell the pool to investors.
The insurers who were paid are bankrupt. So is FM and FM. So other than a never-explicitly-stated backstop by the federal government, which can't be worth much on the open market, I just don't see much difference in what the investors are going to be willing to take in yield because you now have bankrupt FM/FM instead of bankrupt other insurers.
I'm sure it will make a difference. I doubt the difference will be that much.
Posted by: Tipster at February 13, 2008 10:21 AM
I really don't know much about this but if the spread between jumbo and conforming is roughly 1pt, I would think once the stimulus package is passed it would move the spread closer to a half pt.
The interesting thing will be to see if conforming rates move up or if the jumbo rates move down or some combination of both.
Posted by: JJ at February 13, 2008 10:46 AM
JJ: You seem to be assuming that the Loans Formerly Known as Jumbo will be packaged with conforming loans.
It's unlikely that they will.
Posted by: Jim D at February 13, 2008 11:44 AM
Anyone have opinions on whether the increased conforming loan limit will have an effect on LTV limits?
Virtually all banks (at least related to SF properties) are only loaning up to 90% LTV. I'm curious whether they will push that higher now that the risk of defaults will be hedged by the increased FM guarantee.
Posted by: T L at February 13, 2008 12:24 PM
"Virtually all banks (at least related to SF properties) are only loaning up to 90% LTV"
I recently (2008) had no problem securing a mortgage with a LTV at 95%. I am not sure what "virtually all banks" means but I had more then 1 option from several reputatable banks offering loans with only 5% down. Also, the rate was no different on the loan if I put 5% or 10% down.
Posted by: Craig at February 13, 2008 12:39 PM
My understanding is that that situation is changing rapidly and has changed dramatically in the last few days.
Lenders are now under the belief that prices will continue to fall, dramatically in California, Florida and Arizona, and so they are protecting themselves by requiring higher down payments so that, even if the loan is underwater, the homeowner feels real pain by walking away.
For example, if they think prices may fall by 30%, at least if you have 10% of your own skin in the game, you are less likely to walk than if you had 5% or 0%.
And therein is the problem. If you don't have $100,000+ to put down on a condo, or you don't want to put that much at risk, you won't be buying one any longer. If you HAD been willing to put down $50,000, then you merely now must wait for prices to fall to half of what they were before you'll be buying.
Posted by: Tipster at February 13, 2008 12:57 PM
I understand your points and think they make all the sense in the world however, that is not what the lending world is telling me.
I just spoke with (30min ago)one of the lenders I normally work with and they said 5% down loans are still readily available.
Maybe in the time you last posted and the time I called him things have changed but I really doubt the market is that volatile.
I would agree that it is probably more difficult to secure a loan with 5% down but do not think it is impossible or even unlikely that it can't happen. 0% down is a different story.
Posted by: Craig at February 13, 2008 1:17 PM
Eloan didn't seem to agree with you when I put in for a $1M loan with 5% down. They said they had nothing available. I know that there are others, but it was just a quick check I did.
I'm sure there are such loans available somewhere, and for the right interest rate and credit score (and 5 points - ha!), I'd probably make them myself. But my understanding is they are not very common right now, and getting less common by the day.
Posted by: Tipster at February 13, 2008 1:38 PM
Craig, so we know Tipster was looking for a $950,000 loan, what was your amount? Below the $729K?
Posted by: view lover at February 13, 2008 2:06 PM
B of A is fine with 5% down.
Posted by: Guy at February 13, 2008 2:06 PM
Where did you hear that it will take 30 days for the new limits to take effect? I have been getting conflicting information from different sources on this. I have checked the various "official" government sites and they are silent on the question.
[Editor's Note: Our answer.]
Posted by: Gary Jensen at February 13, 2008 2:17 PM
It's true that 95% LTVs are harder to get. But I don't believe that the lenders are not blanketing entire states (e.g. CA, FL, or AZ) with more difficult terms. Recently Countrywide identified "at risk" markets for depreciation (e.g. Stockton) and is now offering different terms depending upon risk but they are not lumping San Francisco or Palo Alto into the same bucket as Antioch... yet.
[Editor's Note: San Francisco Currently A "Category Two" Soft Market To Countrywide]
Posted by: "Dave" at February 13, 2008 2:21 PM
I was asking for a loan under the $729k thresold. It was $625k to be exact. That may play into this. Also I was talking with a bank directly, not ELoan but again I am not sure if that makes a difference one way or the other
Posted by: Craig at February 13, 2008 2:53 PM
Where did you hear that it will take 30 days for the new limits to take effect?
With the signing of the bill the Secretary of Housing and Urban Development has 30 days to establish official median home prices for the high cost areas (the first step in calculating the new conforming loan limits). In addition, updated underwriting guidelines need to be debated, drafted and distributed.
Perhaps we'll be pleasantly surprised, but for the time being we’re going with at least 30 days before the new limits are in effect.
Posted by: SocketSite at February 13, 2008 3:08 PM
Tipster - you can't use that Eloan online calculator to gauge what types of loans are available. If you call them, you will often get very different information that what they disclose using that calculator app.
I have a friend who is looking at new condos. The developer and a mortgage broker said he won't have a problem getting a 5% down loan. I was actually rather suprised myself, but it sounds like they're still available with more than a couple of banks. Personally, I think 10% is a better target for a down payment, but 5% is still around I believe.
Posted by: Lance at February 13, 2008 3:22 PM
Chase, Countrywide, BofA, and a few other smaller banks all stated an 89-90% LTV cap on properties in the appraisal range of $750-$850k in SF.
That was my experience anyway.
Posted by: T L at February 13, 2008 4:37 PM
It's hard to compare what you can get in a 'special financing package' to what you can get in the open market.
In the case that you have a developer and a mortgage broker involved there are probably some hidden points that the developer is paying in order to keep their prices high.
Posted by: Jay at February 13, 2008 5:15 PM
I am surprised that 5% down loans are being issued given the market uncertainty, even in SF. Maybe banks also have pressure to make some loans, after all, loans are what show up as assets on their balance sheets. Then again, that's the way it used to be in the 80's when I I studied finance. So many things have changed with banking regulation but I'm out of the loop on most of them. However, I was under the impression that some changes were made with the bankruptcy bill of 2006 that allowed banks to tap into riskier markets which could make up for "loans".
Posted by: viewlover at February 13, 2008 5:25 PM
Rate cuts just happened a month ago. Real effects start kicking in, in about 6 months. Raising the conforming loan limit is enormous, and will tremendously increase the demand for properties in SF up to $1mil.
Posted by: [prime] at February 14, 2008 12:10 AM
Has anyone heard anything regarding two, three, and four unit owner occupied buildings being able to receive graduated increases as they did under the old conforming rules? It used to be:
$533,850 for two, $645,300 for three-unit mortgages; and $801,950 for four units. Any chance the new numbers will be adjusted, starting with the 729 and change price point?
Posted by: fluj at February 14, 2008 10:03 AM
**crickets chirping** @ ^^^^^
Just like I thought. Nobody knows the answer to this question.
Posted by: fluj at February 14, 2008 11:14 AM
"Just like I thought. Nobody knows the answer to this question."
No wonder. Nobody is as smart as you are fluj. You are in a league of your own man.
Posted by: anon at February 14, 2008 12:30 PM
fluj, the reason no one knows is because the details ahevn't been released AFAIK. The supposition is that the duplex. triplex and fourplex (why aren't those "quadplex"?) property conforming limits are going to go up propertionately to the increase in SFH limits. But like I said, I don't think anyone really knows the details yet.
Posted by: Satchel at February 14, 2008 1:21 PM
"Nobody is as smart as you man" --
OK, so now I'm Mr. Smart Guy because I somewhat loudly admit to NOT KNOWING something.
"mean anon" strikes again!
Posted by: fluj at February 15, 2008 9:56 AM