March 5, 2008
Loan Limits Have Been Raised For FHA-Backed Loans In California
We’re still looking for additional details, but according to the AP
conforming FHA-backed loan limits have officially been raised (albeit temporarily) in 14 high-cost California counties. "Bay Area counties at the maximum level [of $729,750] for FHA loans are Alameda, Contra Costa, Marin, Napa, San Francisco, San Mateo and Santa Clara."
First Published: March 5, 2008 12:20 PM
Comments from "Plugged In" Readers
so what does this mean? will new "super-conforming" loans up to 729K be available sooner than July 1 for SF homeowners?
Posted by: cy at March 5, 2008 3:51 PM
Are FHA backed loans different than Fannie/Freddie backed loans? From what I can tell, you can get an FHA backed loan with less than 20% down but you still have to meet strict debt/income requirements and have documented proof of income and steady employment.
Can any bank write an FHA backed loan?
How do the rates compare to conforming loans?
Posted by: anono at March 5, 2008 4:10 PM
Yeah I'll echo that, what does this mean-- Aren't 'FHA' loans different?
Posted by: m at March 5, 2008 4:11 PM
ok, to answer my own question, my mortgage broker says that loans will likely be available sometime between april and june, but more specific info should be available in about 2 weeks. but has anyone heard anything different?
Posted by: cy at March 5, 2008 4:11 PM
FHA insures mortgages and these loans were generally used by borrowers with lower credit ratings and/or those without a 20% down payment- FHA allows as little as 3% down. The loan limits were too small for most Bay area buyers until now. They do charge a 1.5% insurance premium up front in addition to monthly premiums. The insurance premiums can be cancelled with 78% LTV. A borrower must have acceptable debt to income ratio- no more than 29% for housing. There are no income limits to participating but you must have documented income and employment. FHA's market share dropped dramatically in the last five years as lending criteria loosened and basically no one paid PMI.
So after doing some research it appears as if FHA loans might be a way for borrowers who can't get a jumbo right now to get a loan, though you must pay mortgage insurance. You can refinance into a FHA backed loan and may be able to avoid the insurance premium if you have enough equity- or do a cash out refinance and pay the insurance premium if you need the money and can't get a bank to do the refi.
My understanding is that the rates for FHA loans are as low as any available- the same as whatever the current conforming loan rate is.
This could help borrowers who can't get a jumbo or who have a big down payment but don't want to pay the higher jumbo loan rate. I think the monthly premiums are small so if you can avoid that 1.5% up front fee by making a big down payment it could be worth doing. This will make a difference if Fannie/Freddie don't get around to actually buying jumbo loans.
Posted by: anono at March 5, 2008 4:45 PM
[Editor's Note: Multiple comments by the same troll but under different names have been removed (as we're prone to do).]
Posted by: [Prime] at March 5, 2008 6:30 PM
Just check the stock chart for Fannie Mae today and you know how great this news is. Congrats!
Posted by: anon at March 5, 2008 6:44 PM
To put things in perspective:
Today's FHA rates are 6.16%. The FHA insurance is 0.5% per month. The rate premium for a super conforming will run about 0.3%. That puts the interest rate at 7%. That's not too far from where jumbo loans are now.
To get a $700K loan, you'll need documented income of about $200K, not much better than the 3X income in pre bubble days.
If you have 20% down and can document your high income, which would have allowed you to get a jumbo loan anyway, you'll save the 0.5%, and the difference in price for what you used to be able to qualify for and what you'll qualify for now is about 35K in a higher purchase price.
I'm sure this will help some. I doubt its some huge panacea.
Posted by: tipster at March 5, 2008 7:42 PM
Correction to the post above: if you have the higher than 20% down payment, you'll qualify for LESS under FHA rules (stricter standards), but your payment will be as if you bought a home for $35K less.
Posted by: tipster at March 5, 2008 8:10 PM
Too many borrowers are excited about nothing. Their loan amount may qualify as a conforming loan, but they may not get a lower rate than their current jumbo rate. Their years of paying their jumbo loan will reset, and they will have another new 30 years to paying of their 30 year loan. There are too much hype on this conforming rate change.
Posted by: moku99 at March 5, 2008 8:37 PM
FHA guidelines can be changed.
Right now the rise in FHA limits will help very few people for the reasons elucidated above.
however, many of us (including me) have hypothesized that the FIRST STEP is to raise the limit.
the SECOND STEP is to relax the guidelines.
This is a stealth way to get the GOVERNMENT to back all these loans. then when they default, the GOVERNMENT (i.e. you as taxpayer) takes the hit.
besides: as many people tell me every day- San Franciscans are rich and can afford these nosebleed RE values just by cashing in their google stock or whatever. they don't even need the loans... they'll just plunk down some hard cash.
Posted by: ex SF-er at March 6, 2008 5:34 AM
I agree with ex SF-er. The end game is going to be the basic nationalization of the mortgage market through something like a "Super FHA". The situation with Fannie and Freddie is getting dire. A forced unwind of leveraged prime and Alt-A loans is going on, and investors are waking up to the idea that Fannie and Freddie are insolvent. Fannie is down almost 10% TODAY alone. Anyone thinking that the credit mess is going to "blow over" is taking some powerful drugs.
BUT, while the endgame will be hyperinflation, as dollar debt is effectively repudiated, this is likely to occur only AFTER a massive asset deflation. Only calamities force countries to hyperinflate (WWI as regards Germany, total collapse of state-planned economy as regards Russia, France after the Revolution, etc.), as a hyperinflating country encounters INSTANT depression, especially when we are talking about the types of debt levels in the US.
Right now, the deck chairs are being rearranged on the USS Titanic, so as to allocate the losses when they come in full force. The FHA increase and the desperate attempt to keep people paying their mortgages and to create at least a semblance of a functioning property market are just parts of this process.
Posted by: Satchel at March 6, 2008 7:31 AM
do you subscribe to the "Ka-POOM" theory?
Posted by: ex SF-er at March 6, 2008 5:15 PM
Not really, but I do like some of the ideas. I've read some of the iTulip ideas, but to me - where they all fall down - is that they conflate MONETARY inflation with CREDIT inflation. They're two different things. "Ka-POOM" seems to envision a vast sea of overseas "dollars" that are going come flooding back and inflate everything, once the Fed loses control of its attempt to balance the deflationary influence of massive debt and the Fed's inflationary "raison d'etre". Jantzen - like all the inflationists - believe that the Fed is a nonstop inflation machine, and that they are "spooked" by deflation. If that's the case, why did they deflate us in the 1930s? (please, no talk of a "liquidity mistake" - they knew exactly what they were doing!) I've posted this link before, and I think it comes closest to what I think is going on (he is a little more conspiratorial than I am, but just a little!):
Getting back to Ka-POOM. IMO there is no "money" sitting overseas. It's all credit instruments. Much of this is in RMBS, CMBS, GSE paper, etc., and that is in the process of disappearing right now. Unless these mysterious foreigners can find a US institution with real $$ to lend against these issues, where are the dollars going to come from? And, good luck trying to find an institution in the US with the $$ and the willingness to lend!! Moreover, the USG always retains the right to slap on limitations, from cramdowns to restrictions on where the "money" can go (no oil companies for you, China, but how 'bout this smorgasbord of $hit we affectionately know as "Bear Stearns" or "Citibank"??), all the way to capital controls.
Anyway, as I've written many times, bottom line the money is gone. The monetary base is only $840 billion, and we are about to witness a bonfire of something like $20 TRILLION in phantom credit instruments. the hit to household wealth is going to eclipse anything seen in living memory in the US. They could run the presses 24/7, but until the assets deflate to reflect this new lower level of credit, I don't think you'll see too much inflation at the aggregate price level, but it might get dicey for food and oil near term!
I guess I'll stop here (I could go on forever, as I am sure you know), but it sure is interesting watching this unfold! These markets are terrific for trading if you have discipline and a cogent thesis. I liked your idea from the other thread about knowing TSHTF when the Bear Stearns' funds blew up. That's when it clicked for me as well (well, the February 2007 "dislocation" in the Dow and in China, and New Century blowing sky high the very next month perked up my ears as well, so I guess i was ready for the confirmation when it hit in July...).
Posted by: Satchel at March 6, 2008 7:41 PM
BTW, relevant to the discussion regarding Jantzen's implicit assumption that the Fed is terrified about deflation and would step in with unlimited liquidity, take a look at the Fed's temporary repo operations this week (google "the slosh report" or go directly to the NYFed's website). Yep, you guessed it. With the credit markets going absolutely dysfunctional this week and Fannie and Freddie blowing sky high, the Fed withdrew liquidity. Every single day this week.
Nuts like me (and other people who are fascinated by the mechanics of depressions and panics) recall that the Fed was also withdrawing liquidity during 1931 and 1932. Of course, that was a "mistake", and now that they learned they'd never do that again.....
Posted by: Satchel at March 6, 2008 9:39 PM
Can anyone tell me if these new higher FHA loan ceilings will also apply to reverse mortgages? Thanks.
Posted by: Sib at March 7, 2008 8:26 PM