Monday, January 28th, 2008 at 8:21 PM
Stimulus Derailment Possible?
From Inman News:
A proposal to increase the $417,000 conforming loan limit faces an uncertain fate in the Senate, where an influential Republican is questioning the wisdom of allowing Fannie Mae and Freddie Mac to buy up or guarantee what are now considered jumbo loans.
House leaders and the Bush administration tentatively agreed last week to boost the conforming loan limit and to raise caps on FHA loan guarantee programs as part of a $150 billion economic stimulus package.
It’s still unclear exactly how much the conforming loan limit was to increase under the agreement. House Republican Leader John Boehner of Ohio’s office said the agreement was to raise the conforming loan limit to $625,000, while House Speaker Nancy Pelosi said Fannie and Freddie would be allowed to purchase mortgages of up to $729,750 in high-cost areas.
Both Boehner and Pelosi issued statements saying the agreement between House leaders and the Bush administration called for Federal Housing Administration (FHA) loan guarantee programs to be expanded to cover loans of up to $725,000, up from $362,000 now.
The increase in the conforming loan limit would be temporary, expiring after one year, while the increase in FHA limits is envisioned as permanent.
But an increase in the conforming loan limit faces opposition in the Senate, where Sen. Richard Shelby, R-Ala., is sticking with the position previously held by the Bush administration: that any increase in the conforming loan limit should be tied to strengthening oversight of Fannie and Freddie ("the GSEs," or government-sponsored entities).
The House passed a GSE reform bill in May, HR 1427, that would create an independent agency to oversee Fannie and Freddie. But passage of similar legislation in the Senate has been stymied in years past by disagreement over the separate but related issue of growth limits on Fannie’s and Freddie’s loan portfolios.
A spokesman for Shelby, the ranking Republican on the Senate Banking Committee, said he "believes that consideration of raising the conforming loan limit should be done carefully within the context of broader and meaningful GSE reform."
In Shelby’s judgment, "doing so in the absence of such a process enables thinly capitalized entities with recent accounting problems to provide a high-risk benefit to the wealthiest Americans without any real consideration of the need to do so, or of the risks it presents to the taxpayer," a spokesman for the senator, Jonathan Graffeo, told Inman News in an e-mail.
The National Association of Realtors has estimated that raising the conforming loan limit to $625,000 would prevent 140,000 to 210,000 foreclosures and prop up home prices by 2 to 3 percentage points. But critics say increasing the limit could hurt Fannie and Freddie’s mission of helping low- and moderate-income families and put them at greater financial risk.
Sen. Chris Dodd, the Connecticut Democrat who chairs the Senate Banking Committee, has promised to support passage of GSE reform legislation this year — a prime consideration in the Bush administration’s decision to get on board with a temporary increase in the conforming loan limit, Treasury Secretary Henry Paulson said Thursday.
But Dodd is also pushing for more foreclosure relief programs in the economic stimulus package, including the creation of a Federal Homeownership Preservation Corp. that would be provided with $20 billion in funding to purchase mortgages from lenders, allowing homeowners to refinance into government-backed, fixed-rate mortgages.
President Bush in his State of the Union address tonight is expected to warn the Senate not to push for additional programs in the stimulus package, such as tax rebates for Social Security recipients and an extension of unemployment benefits, the Associated Press reported.
"I don’t think the Senate is going to want to derail this program," AP quoted Paulson as saying in a CNN appearance Sunday. "And I don’t think the American people are going to be anything but impatient if we don’t enact this bipartisan agreement quickly."
It’s unclear, however, whether Shelby or other Republicans who object to some provisions of the stimulus bill that’s eventually put forward by Senate Democrats will have the opportunity to make amendments.
The House was scheduled to vote on an economic stimulus plan Tuesday, and Senate Majority Leader Harry Reid has set a Feb. 15 timetable for putting a bill on President Bush’s desk.
Posted on Monday, January 28th, 2008 at 8:21 PM in Thinking of Selling? | 19 Comments » | 
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"The National Association of Realtors has estimated that raising the conforming loan limit to $625,000 would prevent 140,000 to 210,000 foreclosures and prop up home prices by 2 to 3 percentage points."
So how does this work? Is it that there are that many people with jumbo loans heading for foreclosure who would be able to make their payments if they could refi as conventional, or is there something else I’m not seeing?
I’m not even going to try to figure out how they come to that "propping up" home prices conclusion. I don’t hear a lot of people saying they’d be ready to run out and buy a home for a higher price in a falling market if only they could get a lower rate. Seems to me the main beneficiaries of "propping up" would be people in the refi business.
GeneK | January 28th, 2008 at 10:08 pmAgreed, I think they are referring to 140,000 mortgage brokers who can rev up their refi machine (again).
The NAR shoots from the hip. Have you ever seen them (I should say us….I’m a member) back up anything they have said with data?
Jim the Realtor | January 28th, 2008 at 10:12 pmThank heavens this nonsense is finding opposition in the senate. Paulson can keep his veiled threats to himself; as if anyone has been fooled into thinking he gives a damn about the ‘American people.’ I’d like to throw him a big can of stfu.
Jim, I will always think of you as independent of the NAR, for whatever that’s worth. Not that there is much credibility at stake, but every lie they tell chips away a little more at what little they may be able to salvage.
Genius | January 28th, 2008 at 10:29 pmYeah, let’s continue privitizing the profits and socializing the risks!!!!
I hope Nancy Pelosi gets cancer.
greenlander | January 28th, 2008 at 11:00 pmOFF TOPIC:
Jim,
Can you tell me how people can buy a new home at one of the new home communities – they all seem to be non-contingent? How do people do this? Did they really sell there house and are just renting until the new home is available?
It used to be that you could buy a new home that was going to be built 6 months out and in the meantime sell your home but they don’t allow that anymore.
This market has me perplexed.
Thanks.
Todd | January 28th, 2008 at 11:05 pm<greenlader>
<I hope Nancy Pelosi gets cancer.>
What a horrible, juvenile and idiotic thing to say!
I don’t like Pelosi either but my wife suffered two rounds of cancer. Let’s hope you don’t get to experience that disease!
Spike | January 28th, 2008 at 11:05 pmI think they are referring to 140,000 mortgage brokers who can rev up their refi machine (again).
It think the 140,000 are the ones in danger of losing their homes if this doesn’t pass.
Rob Dawg | January 28th, 2008 at 11:11 pmTodd,
I’m not sure about those new-home sales either, but I’ll offer a guess.
The buyers must be ones with big down payments only. Big cash from selling in LA or SF areas, inheritance, stock options, sale of business, lotto, etc.
Because if you have to leverage, by the time you add in the exorbitant HOA and Mello-Roos fees, buyers HAVE to notice how expensive it is – don’t they stop themselves when payments are reaching $10,000 per month or higher?
I’ll do a check on some recent new-home sales and let you know today or tomorrow.
Jim the Realtor | January 28th, 2008 at 11:28 pmThanks. I’ve been looking at Derby Hill in Carmel Valley. The sales agents there are rude jerks (to put it mildly).
They act that if you have a disease if you dare ask about contingency.
Todd | January 28th, 2008 at 11:46 pmAnd that’s because they have how many other prospective buyers camping out on their lawns for a chance to buy…?
I can’t imagine why anyone would make a non-contingent offer on a house in this market, especially if it hasn’t been completed yet. I’d be writing an offer with an inspection contingency that extends until home is completed, then hire a home inspector to conduct the walk-through.
GeneK | January 29th, 2008 at 12:17 amRight on GeneK.
I can’t imagine it will be long until builders change their tune on this, especially in North County. There’s already a huge surplus, with hundreds of homes still contracted to be built. In this market they can’t afford to put up more roadblocks. I expect them to drop prices too. You’d think the builders are more likely to act sensible than those individuals who say "Oh no, I’m not going to give it away." (LOVE that line!)
You’d think so, anyway.
The Blur | January 29th, 2008 at 1:05 amRegarding the Derby Hills CV comment – the agents are arrogant about contingencies because they are having no trouble selling houses without them. I saw a bunch of houses for sale on the MLS in the Carriage Run area – very ugly on the outside and absolutely no yard – stacked on top of each other like condos – all for over $800K and they are all sold! It seems that the school district is carrying the area and people are buying anything in Torrey Hills they can afford. No one seems to be worried about the downturn in this area.
annon | January 29th, 2008 at 3:19 amI make $75,000 a year and am interested in a 1.4mil house in CV. It’s worth it for the schools. How do I get a no doc 100% loan that the gov’t would assume the risk? I do have 1000 shares of pets.com stock that I’d be willing to trade as a downpayment. In the spirit of the housing market, I don’t want to give it away but I’ll make you a deal. Here is the link for current values.
http://finance.google.com/finance?cid=664241
pseudo | January 29th, 2008 at 4:57 am"critics say increasing the limit could hurt Fannie and Freddie’s mission of helping low- and moderate-income families and put them at greater financial risk."
If that is indeed their mission, then the senate has no business whatsoever to raise that limit. $625K is not a low OR middle income home, even here in SD. Meanwhile, the market is doing just fine coming back down to where middle income folks will be able to buy a middle income house again. I wish the government would stop trying to bail the Titanic at everybody’s future expense.
Simone | January 29th, 2008 at 5:05 amI wish the government would stop trying to bail the Titanic at everybody’s future expense.
CA renter | January 29th, 2008 at 6:53 am————-
Amen!
Remember the Neutron Bomb? This was a special version of a nuclear weapon that mostly produced radiation, no blast. The "appeal" of the device was that it only killed people, not buildings.
Congress never authorized the neutron bomb in the 1970′s, but they want to build one for you today. “Don’t worry, this only kills your financial future. The house will be unharmed!!” Little surprise that we can expect to see vacant neighborhoods in the future. Homeownership will have been irradiated, but the houses will still be available for immediate move in! Who knows, the down payment of today may go a long way to paying the full price of the home of the (near) future! All hail the housing bomb!!!!
Rational expectations | January 29th, 2008 at 9:23 amI don’t understand this
"The National Association of Realtors has estimated that raising the conforming loan limit to $625,000 would prevent 140,000 to 210,000 foreclosures"
If people owe more than the house is now worth how can they refinance with a conforming loan? Isn’t a lot of the problem that these people can’t refinance because they are upside down on their homes?
Erin | January 29th, 2008 at 2:11 pmEven developers are suing the realtors:
SurferNate | January 29th, 2008 at 4:57 pmhttp://blog.miamicondoinvestment…ues-me-for-25m/
I know exactly what raising the GSE conforming caps is about and why they are rushing it through right now. An unprecedented wave of foreclosures is coming and banks, investors and central banks worldwide are holding worthless mortgage bonds – almost all of them are based on jumbo mortgages.
The only way to protect those investors is to insure their losses with the United States Treasury by having Fannie, Freddie and FHA guarantee the mortgages. That means investors who would otherwise bring multibillion dollar fraud suits against the investment banks for selling this junk will now quiet down and trade their bonds because for every American who walks from his mortgage, the US taxpayer will guarantee the loan.
This is the first step in the biggest bailout in history.
Sean Olender | January 31st, 2008 at 3:59 pm