Conforming Loan Limits – Expiring Or Extending?

by John Glynn on September 15, 2011

'Obey, conform, consume' photo (c) 2004, Z_dead - license:

tongue-in-cheek image here. while this artist questions conformity in society, as a mortgage borrower, conforming is a good thing.

Conforming loan limits are set for a change in just two weeks. This will impact Alameda County, San Francisco, Contra Costa, Marin and pretty much the entire Bay Area. If you’re in the conforming loan limit impact range, and have not done anything about it yet, it’s too late. There’s no way you’re going to start a loan today and close it inside of two weeks. As it stands, closing a loan on October 1 or later, above 625,500 will put you in the non-conforming (or “Jumbo”) sector. Terms are different, and there are several advantages to being a conforming borrower.

But Wait – There’s Something Brewing…

As the economic data in the US continues to roll in, the hopes of a rebounding economy are fading in favor of “double-dip” recession forecasts. There’s still a looming threat of financial crisis contagion from Greece and the rest of Europe, and the domestic data just doesn’t have much to offer in the way of inspiration. Unemployment, GDP, Housing Statistics, Consumer Sentiment, etc.

And just as the tide is shifting, the political arena is gearing up for campaign season. It matters not what we think is right or wrong in terms of removing government support from the housing market by downsizing Fannie Mae, Freddie Mac and HUD (FHA Lending) in favor of private markets. At this time of year politicians seeking reelection will act with short term interests in mind. None of them want’s to be perceived as lacking sympathy for the struggling American, pulling the plug on stimulus era housing/lending legislature that served to prop up a decimated marketplace.

What Are The Chances For A Conforming Loan Limit Extension?

HUD has already scaled back down to the lower limits. You cannot get an FHA loan above 625,500 any longer. They maintain support for the expiration of the higher limits, and are on record as saying that they would like to see the FHA market share roll back a little in favor of private lending.

In the Fannie/Freddie world, a bill was introduced in Congress back in July, which would extend the limits for two more years. Last week, a bipartisan group including 37 lawmakers urged the issue.

Don’t Count On It

If an extension is granted, we’re likely to learn about it at the last second, or maybe even after the current levels expire. And whether an extension is good for another year, or two, or three, all the investors and lenders have already cut off locks, and re-engineered their processing software. It may take some time before the product is offered again. You just can’t count on it until it happens.

When the impact studies came out on these expirations, I questioned the bottom line assessments that the markets could handle these changes without much incident. In the marketplace today, I am seeing an increased level of appraisal issues – where the value of the home has declined beyond expectations. The rising tide of negative overall sentiment in the economy isn’t helping the appraisers see with an optimistic lens, I guess. Allowing loan limits to expire only exacerbates this problem, and puts more homeowners into the mortgage ‘hurt locker’ – trapped in outdated financing and unable to access current market terms. I do not think this shaky market is ready to bootstrap itself into a vibrant, private marketplace.

I’ve got my fingers crossed…



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