Thursday, July 7, 2011

Sellers Brace for New Mortgage Caps

This is the best article I've read showing the impact of lowering conventional mortgage cap.  What is talked about less and I didn't even know until I read this article is FHA is also lowering their loan limits.  Since about 30% to 40% of mortgages are funded by FHA program, this will have a big impact.  Traditionally, FHA was only about 1% to 5% of the mortgage market, so it's expanded well beyond it's initial purpose which was to insure low down payment loans for first time home buyers purchasing a starter home.
Fannie and Freddie limits
Had the lower limits been in place last year, Fannie and Freddie would have backed 50,000 fewer loans, according to the Federal Housing Finance Agency. The bulk of the affected loans — about 60% — are in California, with another 20% in Massachusetts, New York and New Jersey.
Parts of the country with less expensive homes also would be affected; their limits are scheduled to fall as low as $417,000 for Fannie and Freddie loans and as low as $271,050 for FHA loans
FHA impact
Limits for Fannie and Freddie-eligible mortgages will fall in 250 counties, and FHA limits will drop in about 600 counties. While that is a fraction of the nation's 3,000 counties, economists at the National Association of Home Builders say those densely populated areas account for 27% and 59% of the nation's housing stock, respectively.
Finally, the impact of mortgage rates and mortgage securitization

For now, interest rates for jumbo loans are relatively low, which could cushion the impact of changing loan limits. Rates on 30-year fixed-rate jumbos averaged 5.07% last week, compared with 4.62% on government-backed loans, according to financial publisher HSH Associates. The jumbo rates are near the lowest mark since HSH began its count in 1986, and the spread is the lowest since mortgage markets seized up four years ago.
But rates are only part of the equation. Because jumbos aren't being securitized, banks must keep them on their balance sheets and are generally requiring larger down payments and stringent income qualifications."It'll be a real test of private lenders and their ability to fill the void," said Mark Zandi, chief economist of Moody's Analytics

Read it all

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