March 13, 2008
If The Plugged-In Readers Are Right, Jumbo-Conformings Are Here
From a plugged-in reader last week:
[E]ffective date of the conforming limit increase, it's going to happen 3/14 (not public knowledge yet).
From a plugged-in reader today:
My mortgage broker just called me and told me [he] had one provider (indymac) who was now providing CA jumbo loans under the new limits ($700k+ vs $417k). He said the spread between the new Jumbo rates versus non-conforming (<=$417k) is 50 basis points as opposed to the 100-150 basis point spread a few months ago.
First Published: March 13, 2008 10:44 AM
Comments from "Plugged In" Readers
actually, some lenders started as early as march 7th. some banks were ready to start the new rates with the assumption that loans would not close until april 1 (when the FHA steps in). from what i understand, banks are calling loans above the old conforming rate but below the new rate "jumbo-conforming" and are offering rates that are about in the middle of a typical jumbo rate and a typical conforming rate.
we talked about it here on March 6th: Let there be money
Posted by: garrett at March 13, 2008 10:55 AM
i asked my broker if these were FHA loans he said they were not FHA.
Not sure if that matters, but wanted to add clarity.
Posted by: ashleydupre at March 13, 2008 11:03 AM
Good news for those who can refinance and save a hundo a month. Not sure what else it does, though.
I want to buy a property, but the seller is delusional and wants about $150K more than it's worth. Now that my mortgage got 0.50% cheaper, and I going to rush in and buy it? No.
But on the topic of conforming loans, anybody see the press release from Freddie's CEO this morning? This is classic! Fed and Treasury told Fannie and Freddie to raise capital and shore up reserves. Between the 2 of them, they're tracking for nearly $20 billion in annual losses in '08 on a run-rate basis.
Freddie's CEO, Richard Syron, refused because it would dilute existing equity holders. He claims they have enough in reserves despite their record losses, and actually made the statement, "This company will bow to no one!"
Outstanding. What are the odds this clown is demanding a taxpayer bailout in the next year or so?
And this on the same day that DataQuick reports SoCal home sales at all-time lows, with prices down nearly 20% in LA and the OC. Plus foreclosures up 60% in February, another record. Damn the torpedos!!
Posted by: Dude at March 13, 2008 11:24 AM
As long as lending standards are preserved, the conforming limit could be $10M for all I care.
Even if the mortgage rate was 1% fixed for 30 years, I still wouldn't buy a highly leveraged asset in a falling market.
Eventually, you have to pay back the principal using Real Money (after-tax). That's the fundamental problem...
Posted by: Jimmy (Bitter Renter) at March 13, 2008 11:29 AM
The problem with real estate in West side LA is that sellers aren't budging from the incredible runup. There's plenty of demand.
Posted by: fluj at March 13, 2008 11:37 AM
Jimmy, thats right. But what if you can pay back principal with someone else's money. Wouldn't you buy an asset even in falling market????
That will happen with the current Fed, treasury, congress and el presidente...
why else would Fed take mortgages from banks, why else would they raise FM/FM limits...
Posted by: SFwatcher at March 13, 2008 11:42 AM
I guess if servicing the mortgage was cheaper than renting and I could, in fact, pay back the entire loan with OPM (other peoples' money) then... yeah, you'd just take the cheapest option available to you.
That's what most people do.
Posted by: Jimmy (Bitter Renter) at March 13, 2008 11:52 AM
Hey--let's get a post on Barney Frank's bailout plan. I think it will be helpful even though I dont like taxpayer money for this. I'd be iterested in Satchel comments on it too! http://www.house.gov/apps/list/press/financialsvcs_dem/press031308.shtml
Posted by: cooper at March 13, 2008 12:16 PM
The Barney Frank plan would make a good topic. I've just read through it briefly, but - look - weren't we all expecting this??
I expect we ultimately get something like this plan, and the numbers will be closer to $1 trillion when it is all said and done. My guess is that the bad debt will be eaten at twice its intrinsic value by the taxpayer, allowing the banks to foist approximately $500 billion of losses onto the USG and the population. The Fed will not take a dime of loss in the end, but certain members of the banking crime syndicate will go out of business, perhaps to the tune of $500 billion in losses as well to banks (shareholders) and other lending institutions (including hedge fund investors, FCBs and other components of the "shadow" banking system).
Will even this $1 trillion bailout number stop a decline in home value? IMO, not a chance. The overvaluation of US residential real estate is just too great, on the order (still) of about $5-6 trillion. Since this overvaluation is not evenly distributed between encumbered and unencumbered properties, losses in the event of a quick decline would be catastrophic (people with little or no skin in the game will walk in unimaginable numbers), as people are finally starting to understand. So, this new "bailout" plan has the effect of delaying the losses and slowing the adjustment (rather than arresting it), which keeps people sending in their principal payments to those payments' "rightful" owners (sarcasm alert) - the banking system. So long as the adjustment is slow, the other $5 trillion or so of loss can be borne by the homeowners.
There is always talk of how the losses wil go unnoticed because of inflation, and perhaps that will prove true. But, as we are seeing with the thread on 246 2nd Avenue, nominal prices are just about back to 2000 levels there! The Empire State Building was sold in 1951 (I think) for something like 20% BELOW its cost in 1931, even though there had been a significant devaluation of the dollar and rampant inflation, especially in the 1940s (war will do that...). There are condos today in South Florida that carry NOMINAL proces lower than when they were sold in 1984 (actually, more than you might imagine!). I still think that the likelihood of rampant inflation going forward is remote, until of course enough debt is destroyed that the Fed will be free to inflate the money supply again (rising interest rates at that point won't be a big deal because of the lower debt/GDP levels).
By reducing short term interest rates and trying to get the ARM game going again, the Fed and the USG in all honesty will make it difficult for even prudent nonowners to resist purchasing a home, as the apparent carrying costs decline. Which I guess is the idea!
I too would like to hear what others think on this subject.
Posted by: Satchel at March 13, 2008 1:21 PM
The current (pre- jumbo-conforming) spread between confirming loans and jumbo loans in about 1%. So assuming this 50 bps discount holds, the net result is a .5% drop for the piece of a jumbo between 417k and 729k. Take it? Sure. But it is insignificant and will have no impact on the housing market here or anywhere else.
Jimmy (whether for the correct reason or not) notes the driving force -- demand has dried up.
Posted by: Trip at March 13, 2008 1:25 PM
It's not just that there is a small price drop in the new larger conforming loans, it's that such loan are available at all. While demand appears lower, it's difficult to assess how low if no one can get a loan. S.F. could be one of the few markets where this actually makes a difference- we'll know in 6-8 months. Don't be surprised to see taxpayer money being used to buy mortgages sooner than you think.
Posted by: anono at March 13, 2008 1:41 PM
since this is applicable.
Freddie Mac released it's "Jumbo Conforming" guidelines yesterday I believe.
There are a few differences between Freddie's program and fannie's program.
the biggest one I see:
Cash out refinances are allowed in Freddie's Program (not in Fannie)
the Automated Underwriting System is allowed in Freddie (but not fannie).
I will abstain from further synopsis, since I screwed it up last time!
Posted by: ex SF-er at March 13, 2008 3:25 PM
This is actually a very significant change to Fannie Mae's jumbo-conforming guidelines. Fannie will only allow a refinance to 75% ltv while it appears Freddie will go all the up to 90% ltv. Not only will they use the AUS system for underwriting, it looks like they will accept limited or no documentation if the AUS approval doesn't require it.
Cash-out limited to 75% ltv and 720 score will be costly though. Almost 3/8% higher in rate for FIXED and 1/2% for 5/1 ARM.
Posted by: theloanphd at March 13, 2008 4:47 PM
Exactly what will happen with these loans is very difficult to forsee. Will the loans be made? Will they be sold to Fanny or Freddie?
My guess is few of these loans will be made, Fanny and Freddy will try to to buy many of those back from the banks, then they will belly up in a spectacular manner which will signal the need for RTC 2.0. This whole mess is probably going to take around a decade to resolve, by which point demographic change is going to be putting huge pressure on incomes and magnifying inflation.
Posted by: Mole Man at March 13, 2008 6:05 PM
"...the net result is a .5% drop for the piece of a jumbo between 417k and 729k. Take it? Sure. But it is insignificant ..."
Hmmm...when you calculate monthly payment, that 0.5% lower mortgage rate has the same effect on 10% price drop.
I guess it is insignificant if you are looking for 30% price cut everywhere.
Posted by: John at March 13, 2008 10:45 PM
when I use dinkytown.net to calculate P+I payment
$729k loan at 6.25%= $4448.58,month
$729k loan at 6.75%= $4728.28
This is a 5.9% drop in P+I
it would be less important of course if we include tax/insurance, as it would make the denominator larger.
however, we're neglecting Taxes and Insurance and HOA which are part of the mortgage
when you add those in, then the 0.5% reduction in interest rate does affects everything even less...
(I'm guessing taxes would be about 800-900/month, insurance about 500-800/month, and HOA around 300-600/month)
using the low end of my spectrum above, it gives me 1600/month on T+I+HOA
that changes it from
This is now only a 4.4% change ($280/month) in actual mortgage payment
I wouldn't call it insignificant, but not groundbreaking either.
Posted by: ex SF-er at March 14, 2008 4:07 AM
there is still a logical fallacy that is happening here.
people keep assuming that future Jumbo-conforming rates will be BELOW current Jumbo rates.
There is no evidence that would support this case.
There is evidence that future Jumbo Conforming mortgages will have a higher interest rate than non-Jumbo conforming, and lower than Jumbo non-comforming.
but we don't know what those rates will be.
typical conforming non-Jumbo: 5.95%
typical Jumbo: 7.05%
POSSIBLE FUTURE THAT PEOPLE KEEP ASSUMING (that I find unlikely although possible)
typical conforming non Jumbo: 5.95%
typical conforming Jumbo: 6.45%
Typical noncomforming Jumbo: 7.05
Spread: 0.5% between conforming Jumbo and non-Jumbo
ANOTHER VERY LARGE FUTURE POSSIBILITY:
typical conforming non-Jumbo: 6.75%
Typical conforming Jumbo: 7.25%
Typical nonconforming Jumbo: 7.75%
spread still 0.5% between conforming Jumbo and non-Jumbo
however, rates for all went UP.
Posted by: ex SF-er at March 14, 2008 4:13 AM
IndyMac shares are $5.27, down nearly 80% since September.
Posted by: tkpsoma at March 14, 2008 8:21 AM
IndyMac shares trade at $5.27, down 80% in the last six months.
Posted by: tkpsoma at March 14, 2008 8:26 AM
Can anyone provide lenders names that are offering jumbo-conforming loans today? I can't find any, and would like to check the rates.
Posted by: roser at March 14, 2008 11:46 AM
I would bet that wholesale will have a jump on these changes versus retail channels so if you want a rate quote, you will need to contact a broker.
In the wholesale channel - I know Indy Mac is now pricing for jumbo-conforming, Washington Mutual is starting today and Wells Fargo has annouced March 17th as a start date for new jumbo-conforming loans.
However, the mortgage markets are a mess currently. Spreads on MBS vs. Treasuries are 100bps (1%) higher than just two months ago, and until this spread narrows, you won't be seeing fantastic deals on mortgages.
Posted by: theloanphd at March 14, 2008 1:26 PM
roser/others - if you are looking for a very competitive rate, I would consider checking out Pentagon Federal Credit Union (penfed.org would be the site I believe).
they are a CU, so you do have to join (you can join the National Military Family Association for like $20 - i know, how very non-San Francisco), which is an extra hoop to jump through.
if you are buying in a new development, they likely won't be an approved lender, nor will they finance your loan in most instances in a new development purchase (they have strict underwriting standards - gasp!). if, however, you are looking to buy a property with a known address (not new construction) especially a SFH or existing condo in our fair city of SF, or if you need a refi, my bet is you will find their rates rather competitive.
If you are not a member yet, you would have to join first upfront and that may take a bit of time - they aren't the fastest lender to work with to be sure. but their rates are exceptional.
they are strict, as I said, requiring great credit, full docs, usually 20% down, tight debt-to-income guidelines, and may not accept loans with a second (purchase or refi) depending on the circumstances. OTOH, I would argue, especially in this market, you probably should not buy unless you really can afford it- and in that sense their requirements may be in your best interests.
they have had 30yr fixed = 30 yr jumbo for the past 2-3 weeks as far as I can tell (rate today 3/14 is 6.125% 0 points) probably in anticipation of the new conforming guidelines I guess. they also cover closing costs (not incl title insurance) as long as you close with them. they have other ARM products too, but I'm too conservative to touch any of these types of products.
I just closed a refi with them to 5.75 from my old 6.50 rate for a 30yr fixed jumbo (just under 700k), with the lender covering all closing costs except title insurance (about $1000) and various recording fees of about 100 bucks more. In general their spreads seem lower than all the other big bank lenders I checked this time around (Wells Fargo was great as my old lender, but $ is king here).
Overall they were good, but a bit slow (I rate locked 1/22 on the day of massive market turmoil, closed 3/13 - ugh pretty slow actually). But for the money, I can be patient.
Posted by: enonymous at March 14, 2008 11:29 PM
I just closed a refi with them to 5.75 from my old 6.50 rate for a 30yr fixed jumbo (just under 700k), with the lender covering all closing costs except title insurance (about $1000) and various recording fees of about 100 bucks more.
wow. that is impressive.
And definitely speaks to the error of always using average and mean data!!!!
congrats on your refinance: may I ask: were there any upfront points?
also: do you have to have a family member in the military in order to sign up? I have friends who are closing soon on a place in SF, but they don't have any family members in the military...
Posted by: ex SF-er at March 15, 2008 8:55 AM
"closing soon" is the key. I would not suggest anyone deal with this company on a purchase. It just won't happen fast enough and they are not too responsive. Great rates yes, great service no.
There is too much at stake on a purchase transaction to trust it to an east-coast on-line lender. However, if time is not a concern, they are worth checking out. They are not competitive on every loan product, but on some, they are tough to beat.
Anyone can join the cu, there are no restrictions.
Posted by: theloanphd at March 15, 2008 10:10 AM
Hi ex SF-er
thanks for all of your posts - I find many of them quite interesting and informative. and unlike some here, you have the willingness to admit when your are (rarely?) incorrect, and the ability to discuss topics rationally...
to answer your q's - no upfront points (I think that was in my original post), no need to have a family member in the military either.
to respond to theloanphd. I generally agree that for a closing that 'must' happen soon, penfed may not be the way to go. they can be responsive on the phone, but it is hit or miss (my loan processor was a miss, but given it was a refi in my case, I had the luxury of time), and yes, there are many moving parts. if your friends are unfamiliar with the mortgage loan/closing process - probably not the best choice.
OTOH, others have reported great success with closing purchase transactions in less than 30 or even 20 days. These folks tend to be very proactive (read pushy/assertive) about the process, and they tend to be quite savvy about real estate transactions in general.
I couldn't use them for my original purchase transaction, and to be frank, even if I could, I don't think I had the time or knowledge to make it work. So, as I said before, generally they aren't the best for a fast moving purchase transaction with a novice buyer.
Of course, one can always close, and then join for about $20, then watch carefully snd lock and refi when it becomes prudent, especially since they cover most closing costs (except title insurance). In fact, with jumbo loans and above, the closer the refi is to the original purchase date, the more desirable a lower rate refi becomes. As many have noted, this is exactly why such mid to high jumbos should have higher rates than smaller conforming loans. These are bonds that the lender holds, and they have huge call risk. I've called mine twice since I purchased in the past 2 years :)
Posted by: enonymous at March 15, 2008 10:26 AM
I'll look into them. (one set of friends closing in a month, the second set close in July)
Posted by: ex SF-er at March 17, 2008 10:38 AM