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A Big Housing Boost from Congress: Raising the Conforming Loan Limit

by Alexis McGee – March 2008

Editors Note: Make sure you read the Tax Strategist this month on "The Economic Stimulus Act: More than a Few Rebate Checks." The news is full of information on the new Economic Stimulus Act. But all you hear about is the $300 - $1200 rebate checks that most Americans will get this spring. However, there are two lesser-known provisions that could give real estate investors even more money in their pockets. Don't miss it!

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In a little-publicized provision of the recently-approved $150 billion Economic Stimulus Package, Congress has agreed to raise the $417,000 conforming loan limit by the end of this year. This is big news folks, and in my opinion, the best idea from our politicians to date that will really help boost the housing industry.

The new higher loan limits will provide a big boost to borrowers in the higher cost of living markets who have been hit the hardest in this downturn (such as California, Florida, New York and most coastal markets) by providing more affordable financing options. This will, in effect, help sellers unload their properties to a bigger pool of prospective qualified buyers.

While Fannie Mae, Freddie Mac and the Federal Housing Administration will soon dive into what, until now, has been the jumbo loan market, I wonder how and when these new loan limits will be implemented.

So let me share with you what I have learned to date.

The new formula for determining the conforming loan limit will allow Fannie, Freddie and FHA to guarantee loans of up to 125% of the median home price of an area. In housing markets where the median home price exceeds $216,840, borrowers will really benefit from higher limits for FHA loan guarantee programs.

The first step to be taken to implement the changes will be determining median home prices. The Department of Housing and Urban Development has been given 30 days to publish median-home-price data from when President Bush signed the stimulus package into law.

But where will HUD get the data? And with prices falling rapidly in many markets, will the data be updated monthly, quarterly or annually?

HUD spokesman Lemar Wooley said FHA will use a combination of existing government data sets and available commercial information to determine the median sales price. He said FHA loan limits are based on the county a property is located in, except when the county is part of a larger MSA, in which case the county with the highest loan limit determines the limit for the entire MSA.

Not only does HUD have to come up with median-home-price numbers for every housing market in America, but Fannie Mae and Freddie Mac will have to come up with credit guidelines for a class of loans that, until now, has mostly been off-limits. The government-chartered mortgage financiers will have to decide what their standards will be for the loans they will purchase, or securitize and guarantee.

As they venture into the jumbo loan market, Fannie and Freddie will have to decide how cautious they will need to be about the minimum down payments they will accept, borrower's credit histories, and the fees they charge for taking on more risk. The task will be complicated by the fact that the maximum loan size will vary from market to market, instead of the uniform $417,000 limit in place today in 48 states other than Alaska and Hawaii.

In high-cost markets (such as California, Florida, New York and most of the coastal markets) the $417,000 conforming loan limit for loans eligible for purchase or guarantee by Fannie and Freddie will be raised to 125 percent of the median home price, with an upper cap of $729,750.

Wow, that's really going to provide a big boost in those markets.

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That formula means that the $417,000 conforming loan limit will remain in place in markets where the median home price is $333,600 or less.

While there's no time limit for Fannie and Freddie to publish guidelines for the new class of loans, the companies have promised to work with regulators to expedite the process. James Lockhart, director of the Office of Federal Housing Enterprise Oversight, told members of the Senate Banking Committee that the process could take months.

The temporary increase in the conforming loan limit is likely to have a bigger impact on FHA loan guarantee programs, because the current limits for FHA are lower. In high-cost markets, the current ceiling for FHA loan programs is $372,790, and $200,160 in other markets.

The new ceiling for FHA loan programs in normal markets will be $271,050 -- meaning that even borrowers in housing markets where the median home price is below $216,840 may be eligible for FHA-backed purchase or refinance loans up to that amount.

In areas where the median home price is above $216,840, the limit for FHA loan programs will be 125 percent of the median home price, all the way up to $729,750. Woohoo can you believe this??????

There's even more good news folks...

Fannie and Freddie will be allowed to buy and securitize jumbo loans originated any time between July 1, 2007 and Dec. 31, 2008. That means jumbo lenders may be able to sell some of the loans they've made in the last seven months to Fannie and Freddie, freeing them up to make more loans.

One reason Congress and the Bush administration agreed to raise the conforming limit, at least for now, is that Wall Street investors will no longer buy most mortgage-backed securities that don't carry the backing of Fannie, Freddie or FHA. That means borrowers are paying about 1 percent more for jumbo loans that exceed the $417,000 conforming loan limit.

Jaret Seiberg (an analyst with Stanford Group Co. who follows the secondary mortgage market) said he is confident that HUD can implement higher loan limits for FHA programs. But he commented that Fannie and Freddie have technological and capital issues to overcome before they become "meaningful players" in the "jumbo light" market.

As to which housing markets might benefit from higher conforming loan limits, Seiberg said Stanford Group used median-home-price data from the National Association of Realtors to analyze where Fannie and Freddie might be able to purchase or guarantee loans above the current $417,000 limit.

Stanford Group identified 19 markets -- more than a third of them in California -- where Fannie and Freddie could enter the jumbo light market.  Estimated conforming loan limit increases (from $417,000) - see the list click here.

Foreclosure deals are at all time highs. And now with the new Stimulus Package passed, buyers will be coming back into the market in droves.

Would you like to get your piece of the pie?

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Mastering Systems Lab is's highly sought after 3-day hands-on learning program. Many of our clients have requested to spend time with Alexis McGee 20-year veteran investor, and her Coach Proteges, so they can fine-tune their discounted buying and quick resale skills. That is why we created this interactive hands-on program, designed specifically to address the needs of our clients.

And now for the first time ever – is offering a "New Investor Stimulus Pricing" for my highly-sought-after hands-on Mastering Lab – to make it MORE AFFORDABLE THAN EVER and EASIER for YOU to PROPEL your foreclosure business into the stratosphere RIGHT NOW!

If you are ready to make it happen NOW while your stars are so perfectly aligned – call our Senior Consultants Judy x102 or Jim x114 at 800-310-7730 for the details.

See you soon at the top!


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