Conforming Loan Limit Adjustment
Before this year, one conforming loan limit applied to the entire country. The amount was $417,000 for a single family unit (since 2006). When Congress allowed for the increase in February of this year, it was done so based on 125% of an areas median home price. The floor was set to $417,000 and the ceiling to $729,750. This temporary increase was to sunset at the end of 2008.
In July the law became permanent, but the formula was changed. It became 115% of an area’s median home price with a floor set by the government and the ceiling equal to 150% of the floor. Last Friday, the Housing Finance Agency said the floor would remain $417 for 2009 which would then put the ceiling at $625,500.
The conforming limit for Monterey County has been set to $483,000 for 2009. In contrast, the Oakland / San Francisco Market have a limit of $625,500 as does Los Angeles, Santa Cruz and Watsonville. What will this do to the already struggling market in Monterey County? For those looking to take advantage of a traditional conforming loan, a down-payment of 35% on a $750,000 purchase would be needed, significantly impacting the pool of buyers positioned to purchase.
Part of the benefit of MCAR membership is the opportunity to take advantage of market professionals who truly understand the dynamics associated with their field of expertise. This week, I was fortunate enough to be able to discuss this issue in great depth with one of our members, Linda Guy. Given the constant fluctuation of the market throughout the country, it seemed to make sense to establish a national conforming limit, high enough to meet the needs of the higher priced communities and counties in the nation, while providing a more accurate model for monitoring success annually. This in turn would eliminate the need for limits established regionally or by area, a formula that is certainly prone to dysfunction as we’ve seen illustrated above.
Buyers would need to qualify under typical lending qualifications and property would appraise locally, establishing an accurate market value.
There are rumblings in Congress that an extension of the $729,750 conforming rate is being contemplated for 2009. Whether or not this comes to fruition by years end is anyone’s guess. A legislative adjustment that would establish a singular national conforming loan limit is needed.
Your input is desired and appreciated as we pursue a dialogue with those in Congress. Please let us know your thoughts by utilizing the MCAR Blog.
Kevin
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Comments
We need the press to help get this message before the lawmakers and the public NOW- It will work!!!
Let’s get the real estate market moving again and help stimulate the economy without it costing the taxpayers anything!!!
As a real estate professional for over 24 years I have seen many markets, and know that this one if far more complicated than most. My frustration is with the fact that so many decisions in Washington are being made based on THEROY and are not being followed to the point of implementation. How will it really work? is not a question that is asked often enough. In regard to how we can get the real estate market moving again and more importantly get more money into the hands of people without it costing us BILLIONS of dollars? I will make my requests and thoughts as simple as possible. (Common sense is not as common and one would think and the Bible says that “God has chosen the simple things of the world to confuse the wise”.
SIMPLFY
In the beginning of 2008 Congress raised the “conforming” loan amount to $729,500. I say “conforming” because that happened in theory only, in truth it was adjusted per county based on the average sales price. Even in the most expensive areas of our nation the $729,500 was not really treated as the conforming loan, only loans under the original $417,000 conforming amount were treated as truly conforming loans. Any loan between $417, 000 and 729,500 were treated as “jumbo conforming” resulting in interest rates of 1.5%-3% higher than the original conforming loan amount.
As a professional who is involved daily with the TRUTH of real estate market, here are points that I would like considered;
1. We need a national loan conforming rate that is not calculated per county. In light of the current situation I see no reason for rates to vary per county when the value of a property is set by what someone is willing to pay for it and then by having the value confirmed by a LOCAL appraisal. Too much time and energy is being spent on trying to calculate conforming loan amounts per county. The national conforming loan amount should be set for at least 2 year and may be reevaluated at the end of that period.
2. I strongly feel that the only JUMBO loan would be loans that exceed the national conforming rate. Again, at this time any loan over $417,000 is considered “jumbo conforming “resulting in substantially higher interest rates on any loan in excess of that amount, with a substantially higher interest rate on loans in excess of that amount.
3. When we hear about the current interest rates of 4-5%. These rates are applying only to a portion of borrowers. I like many first time buyers, used an FHA loan to purchase my first home many years ago and there is certainly a need for this type of loan, but these loans only require 3.5% down payment. If something constructive is not done to stimulate the real estate market and stabilize the values, you can see how these new homeowners will soon join the millions who already own homes where the loan amount exceeds the value.
4. Buyers need to qualify, properties need to appraise, but sadly the most qualified buyers are being penalized by the current policies. Qualified buyers seeking a loan above the current $417,000 even with a minimum of
20% down often and with credit scores of 700+ are accessed higher interest rates.
5. This would not only help with property sales and new loans but also on those desiring to refinance. How much money would this get into the economy as a stimulus? Let’s take as an example a well qualified buyer or homeowner re-financing their loan.
Current interest rate for either a purchase money loan or current rate on an
existing loan of $500,000
$500,000 loan amount
6.5% Fixed rate, amortized for 30 years
Approximate current payment = $3,160
New or refinanced loan of $500,000
5% Fixed rate, amortized for 30 years
New payment =$2,684
MONTHLY SAVING approximately $476.00 or YEARLY SAVING of $5,712.00
$5,700 in the hands of taxpayers and at no cost to the tax payer, this is for only one loan, can you imagine the total benefit to our nation when in truth this number is multiplied.
I ask you help in getting this message before Congress!!!
Thank you for your consideration of this matter.
Linda Guy, REALTOR-Broker-CRB
831-277-4899
http://www.lindaguy.net
**** See current rates attached
30 year Conforming 30 year Super Conforming 30 year Jumbo
4.75% – 4.978% APR 5.00% – 5.243% APR 7.50% – 7.754% APR
ARM products are still available at competitive rates– call for up to date info
Above rates are at 1.5 points
Conforming limit to $417,000 – Super Conforming limit varies by county – Jumbo amounts over Super Conforming limit
The New Conforming loan limit of $483,000 is not a realistic level of financing for home sales on the Monterey Peninsula. The Peninsula specifically has been negatvly impacted by the slide in prices in the surrounding areas, hoever the values call for a different level of financing. The Peninsula has not been an area of pricing distress in the past. To help prevent more loss the Monterey Penisula should not be counted in the Salinas MSA. I am not sure if there is anouther MSA that has such a large disparity in the markets values and characteristics as the Monterey Peninsula to the rest of Monterey county.