Friday, January 16th, 2009 at 10:35 PM
Loan Limits Increasing?
WASHINGTON (Dow Jones)–A U.S. House lawmaker introduced legislation to restore last year’s higher limits on the size of mortgage loans Fannie Mae (FNM) and Freddie Mac (FRE) can buy in certain costly markets.
Economic stimulus legislation passed into law last year temporarily lifted the loan limits to nearly $730,000 from $417,000 through the end of 2008. The limits dropped to $625,500 from $729,750 on January 1.
Rep. Gary Miller, Republican of California, introduced legislation Thursday to reinstate the higher limits, arguing the move was crucial for restoring the affordability of mortgages in some regions of the country and stabilizing the housing market. “As the crisis in housing markets continues, the availability of affordable mortgage loans remains essential to alleviating the credit crunch and stabilizing the U.S
(Dow Jones Newswires 07:36 AM ET 01/16/2009)
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Higher loan limits would make a difference around here, because mortgages are already getting more expensive.
Check this announcement which came out today from wholesale mortgage banker metlifehomeloans, increasing the cost by two points for loans between $417,000 and $546,250 – will other lenders follow?
“Effective Tuesday January 20th, 2009 we will have a 2.00 add to price for ALL Conforming Plus products. FHA loans with loan amount >$417,000 will also see a 2.00 add to price. If you have a Conforming Plus loan and need to lock it you must do it by 5:00PM tonight or be subject to market pricing on Tuesday the 20th.”
Posted on Friday, January 16th, 2009 at 10:35 PM in Interest Rates/Loan Limits | 16 Comments » | 
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Higher limits will happen, they have a very marginal effect on the market. The hits to price will still happen as the loans will still be conforming jumbos.
Ling | January 16th, 2009 at 11:15 pmJim,
Reference increased January sales…you probably have as good a feeling as anyone….Who are all these buyers?
I mean, higher volume doesn’t translate into a healthy market for prices necessarily. For example, an increase in volume generally occurs in stock market crashes. If you only look at the number of buyers in a crash…you’d say, wow, there are alot of people who want to buy stocks right now! (since for every seller there is a buyer) In other words, I wouldn’t say that volume associated with crashes indicates a healthy demand for stocks.
If those who are buying houses today are first-time area buyers, then this would be healthy as it is due to an increase in buying population (whether it is through migration or natural population growth, household formation, etc).
If they are investors, then this doesn’t reduce inventory as it just moves it to the rental inventory…any pressure on rents means downward future pressure on prices.
If they are previous renters, then again their move to a home leaves an empty rental behind, not decreasing housing supply and putting pressure on rent prices. See above.
If they are current owners who want to “move up” then perhaps they are “buy and bail” moves or simply moving to more desireable areas. This again means no real reduction in inventory. This will mean faster deterioration of certain areas and a delay in the downward pricing for popular areas.
All of these scenarios are of course occuring. I was just wondering if you had an opinion on which is most common.
It seems relevant to those who try and decide where to buy as an investment, and may give an indication of how to asses higher transaction volume, i.e. whether it is a sign of health or not.
Average Joe | January 17th, 2009 at 2:47 amI’m a prospective first-time buyer. But I want a nice house 25% below where they are listed now, and higher loan limits are not going to lure me into overpaying.
W.C. Varones | January 17th, 2009 at 6:39 amPushing on a string. Mortgage rates are commanding the highest difference from 10yr Notes in history.
Rob Dawg | January 17th, 2009 at 7:43 amThe government is giving the banks billions of dollars, just so they can lend it at all-time high spreads while crying poor-mouth.
Don’t you get the feeling that we’re being duped (again) by the lending industry?
Jim the Realtor | January 17th, 2009 at 9:15 am“The government is giving the banks billions of dollars, just so they can lend it at all-time high spreads while crying poor-mouth.”
Not really Jim,
I frankly think that those currently lending money to home owners are not charging nearly enough!! They are losing money on virtually every loan.
Traditionally risk spread represents the likelyhood and cost of default…the good loans pay for the bad (and whatever is left over is profit).
Current lenders are lending money to people buying illiquid, depreciating assets, just as we are headed into a recession with increasing job losses. This hasn’t happened in the housing industry nationwide since the depression. Current spreads should look nothing like “historic” home-lending spreads.
Think about it. Anyone who borrowed money (80% or higher LTV) to buy a house in early to mid 2008 (after the bust) is very likely upsidedown. We’ll soon find out that people buying recently, today, and in the near future will also soon be upsidedown.
Now, even if 100% of these buyers can afford the loan and isn’t facing a reset, you still have all the traditional factors that require selling, like sickness, divorce, and JOB LOSS! And unlike a “normal” housing market, were the vast majority can sell out of trouble, these problems all mean forclosure and that means losses for the bank, losses that are WAY above historical norms since they are clogged to the gills as far as the eye can see with distressed inventory.
Frankly, until we hit bottom in pricing and houses start to rise, the spread should be unusually wide.
If banks were to adequately charge for risk, the home loans would be, at least for a while, very expensive. How much interest would YOU want for your money to lend to someone who is buying a house today as we head toward a recession? Remember this is a 30 year fixed loan, unlikely to be refinanced (as rates can’t go much lower) and house prices are still falling.
If rates were high enough today to match the risk, of course this would mean that house prices would fall very far, very fast…and hit bottom quickly. The bottom would be unusually low, so low that people would be willing to pay high rates today to lock in a low principle, with the mindset that they could refinance at lower rates later. (I’d pay 20% to buy a formally $1 million dollar home for say $100,000 for example). This would mean that house prices would begin to rise,as the rates are as high as they can go, and prices are as low.
Thus as private sector/alternative source money moves in competing for loans, rates fall to adjust for the lower risk of lending to those now buying appreciating assets.
But, since those in power can’t afford to have prices drop..they prop up house prices with artificially low lending rates. The banks will lose on every loan and the FED and Treasury will be there to cover the losses.
You can count on a very slow, long decent on house prices, with years of flat prices thereafter, as the housing market is perpetually subsidized with cheap money.
“Don’t you get the feeling that we’re being duped (again) by the lending industry?”
Actually now that I think about it your last sentence is right…since the lending industry has been Nationalized. Taxpayers are now the lenders of last resort.
We are duping ourselves.
Average Joe | January 17th, 2009 at 10:49 amThe government is giving the banks billions of dollars, just so they can lend it at all-time high spreads while crying poor-mouth.
Don’t you get the feeling that we’re being duped (again) by the lending industry?
Yes, exactly. It pisses me off that a decade of loose lending is addressed by the current environment of tight lending. The stimulation isn’t filtering to where it is needed.
Let’s step back and look at somebody buying at 40% off with 25% down. Where is the risk? If in that case there is “risk” then there is no way any other loans should be made at all. It is just a case of lending for fees and not performance. Still.
Rob Dawg | January 17th, 2009 at 12:55 pmActually now that I think about it your last sentence is right…since the lending industry has been Nationalized.
Let’s see…
Does the government have a majority stake? NO.
Shareholders and bondholders wiped out? NO.
Are the bank’s fraudulent leadership are out on their tusshies, replaced with government appointed overseers? NO.
Nationalized. Yeah, right. Try looking up what that actually means.
emmi | January 17th, 2009 at 3:17 pmLet’s step back and look at somebody buying at 40% off with 25% down.
The jumbo market is not 40% off yet, and many people are putting far less than 25% down.
In fact, the government’s eventual means to keep the housing scam going will be to issue 4% interest jumbos with 3% down. I guarantee it.
W.C. Varones | January 17th, 2009 at 3:31 pmWe are in escrow in Hawaii, and after doing a bit of shopping around, are going with a 5/5 ARM from Pentagon CU. Starting rate is 4.75%, with No points and No fees (except title insurance, which our sellers are paying for) for up to $2M, with (at least) 25% down. It adjusts every five years, but no more than 2%, so “worst case scenario” is 6.75% rate for years 6-10. Since we don’t plan to have the loan more than 5-6 years, works out fine for us. I don’t know what the credit score requirements are.
Smithers | January 17th, 2009 at 6:01 pmI should mention that this is for a second home; does not have to be a primary residence, but does need to be “owner occupied” – no rental or investment properties.
Since we are still in the process, I will hold off on my final evaluation of Penfed, but so far their customer service on phone is pretty good. Application was done on-line. Took me less than an hour.
Smithers | January 17th, 2009 at 6:04 pmI don’t think the government is forcing banks to take it in the shorts. Nobody’s putting a gun to their heads to loan money, and I think the government is truly trying to help the banks (effective or not.)
I think Average Joe makes some very astute observations, but this particular thought is a little too “conspiracy theory” IMHO.
The Blur | January 17th, 2009 at 6:59 pmNobody’s putting a gun to their heads to loan money
But this is where it gets out-of-whack.
The government has traded billions for preferred stock in banks, thinking it WOULD put a gun to their heads to loan money.
But there’s no relation, the government is an investor, just like the stockholders that they just cut in front of.
Who knows what the banks are actually doing with the billions, but if they feel like funding mortgages to triple-A credit borrowers, there are plenty that will take them up on it in the high-4% range for 30 years.
Is it worth it to borrow at 2.3% for 10 years or 2.9% for 30 years, to lend as secured mortgages at 4.875% or higher for 30 years? Must be, because they are doing it.
Jim the Realtor | January 17th, 2009 at 8:46 pmDoes the government have a majority stake? NO.
Shareholders and bondholders wiped out? NO.
Are the bank’s fraudulent leadership are out on their tusshies, replaced with government appointed overseers? NO.
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“Between them, the Enterprises have $5.4 trillion of guaranteed mortgage-backed securities (MBS) and debt outstanding, which is equal to the publicly held debt of the United States. Their market share of all new mortgages reached over 80 percent earlier this year, but it is now falling. During the turmoil last year, they played a very important role in providing liquidity to the conforming mortgage market.”
PDF WARNING
http://www.ofheo.gov/media/statements/FHFAStatement9708.pdf
“The U.S. government seized control of the mortgage giants Fannie Mae (FNM: 0.681, -0.019, -2.71%) and Freddie Mac (FRE: 0.67, -0.0399, -5.62%) on Sunday, placing the liabilities of more than $5 trillion of mortgages onto the backs of the U.S. taxpayer.”
“The chief executives of the mortgage companies – Dick Syron of Freddie Mac and Daniel Mudd of Fannie Mae – have stepped down, but will continue to stay on temporarily to oversee the transition, Paulson said. Herb Allison, former chairman of TIAA-CREF, will take over as CEO of Fannie, while U.S. Bancorp (USB: 18.24, -0.78, -4.1%) Chief Executive David Moffett will become CEO of Freddie.”
http://www.foxbusiness.com/story/markets/government-seied-fannie-mae-freddie-mac/
Fannie Mae chart:
http://finance.yahoo.com/q/bc?s=FNM&t=5y&l=on&z=m&q=l&c=
Freddie Mac chart:
http://finance.yahoo.com/q/bc?s=FRE&t=5y
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You can draw your own conclusions…
CA renter | January 17th, 2009 at 10:54 pmCA is correct, Fannie and Freddie are temporarily nationalized. The government has options for 79.9% stake and have already wiped out stockholders and call the shots. We’re talking Trillions with a capital T.
BDiego | January 18th, 2009 at 2:04 amThis explains it:
Gary Miller is on the payroll of the real estate industry.
W.C. Varones | January 18th, 2009 at 7:43 am