Finally, some relief for California home sellers and home buyers. As part of the federal stimulus package, conforming loan limits have been raised substantially, up to $729,000 and, to FHA loan limits are up to the same amount until the end of the year.
Well, hooray for mortgage wonks! We were hoping for something that made sense, you might say…Here’s what it all means…
Until now, conforming loan limits, meaning those conforming to the guidelines issued by Freddie Mac and Fannie Mae and thus saleable on the secondary market, capped at $417,000. Above that limit and buyers had to purchase a so-called jumbo loan with rates at least 1% higher and sometimes far more. That hadn’t bothered us in SoCal much. Even with our ever-escalating prices, lenders simply packaged a first loan up to $417,000 and offered a smaller second loan to cover the difference.
Then came August 07 and the subprime crisis hits the fan. Foreclosures start to multiply, so lenders revise their guidelines to plug up the gaping holes speculators and the penniless had been running through. The investors who provide the money for the second loans designate SoCal counties as “distressed” and decline to provide any more funds.
Jumbo loans cost 1-3% more than conforming, so who is going to take the hit? With lenders heading for the hills, it’s pretty clear that sellers will have to revise their prices, but even then buyers are declining to participate. The market slows to a snail’s pace, making a bad situation worse.
Then, our do-nothing Congress, mired in gridlock, wakes up: 2008 is an election year! Miraculously, passing a bi-partisan stimulus package in record time, Congress makes sure we all receive $300, $600, $1200 or whatever from our tax returns. But, this bill also helps home owners sell their homes by raising the conforming rate up to $729,000 in highest priced areas, such as our own.
What about the buyers? Buyers will have an easier time to qualify with the lower rates, but first-time buyers are getting a break, too. FHA loan limits are $729,000 until the end of the year; that rate expires right after the election. FHA loans typically have down payments of 3-5% or 103% of the purchase price for repairs, all guaranteed by the Federal Housing Authority [FHA]. FHA made home ownership possible for millions of Americans after World War II. FHA may save us once again.
So, you see this is really good news, not just for wonks but for home sellers and first time buyers.