Adjusted Jumbo Loan Limits

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Fraychielle_IHB

New member
OK, so I read that as a part of the "economic stimulus package" just passed, the limits for FNM-purchasable jumbo loans went up to 720k-ish.





What will that mean for me - will I, who got my jumbo prior to the meltdown when loans flowed freely like water, see rates that were below what I got mine for last year, or is this just another smoke-and-mirrors thing to sound good but actually benefit very few people?
 
I know three people that this new conforming rate will help. My friend who bought in December (he would refi his 1st and a 2nd), a co-worker who just got his offer accepted and is starting escrow, and my sister who is buying this summer (has been preapproved for 670k loan).
 
<p>IMO, take the prevailing conforming rates, add perhaps .50 or so, and voila, there's your new jumbo lite rate. </p>

<p>So today, with the best conforming 30-years running 6.25 or so, I think jumbo lites would be around 6.75. Not great, but better than the 7.25 you can get today...</p>

<p>By the time they implement, 30-year conformings will probably be 6.75 with regular 30-year jumbos at 7.75 so jumbo lites will only cost you 7.25 or so. To borrow from IR I believe, Inflation, inflation, inflation. </p>
 
"jumbo lites"... sorry i didn't read more on this... but are you saying there will be 2 conforming rates? maybe i'm not using the correct term... but for example... today if i borrow 250k or 416k... my rate is the same right? If Fannie and Freddie start to buy loans up to say 700k will they have one rate for 416k and 700k?
 
<p>If they have two different rates, then what is a point? One of my coworkers said Fannie and Freddie will be authorized to buy 700k loans and that mean no risk for the initial lenders. So the rate should be same as 200k or 700k loans. Not sure if this is true. </p>

<p>If new 700k loan is with 6.25% while current jumbo loan is 7.25%, that's like instant 10% reduction in mortgage payment. On top of that if you can get 10% discount from the asking price, I think that is not a bad deal as long as you can afford the payment and stay there for 7 years or more. Any thoughts?</p>
 
The raising of the conforming cap will not bring down the prices of jumbos, it will raise the prices of all mortgages...





From <a href="http://calculatedrisk.blogspot.com/2008/01/options-theory-and-mortgage-pricing.html">Calculated Risk</a>:





One way of describing the situation we’re currently in is that borrowers are continuing the short loan life of the boom (which was made possible by easy refi money and hot RE markets) by substituting jingle mail for refinancing. That increases credit losses to whoever takes the credit loss (the GSEs and the mortgage insurers), decreases servicer cash flow (a refi substitutes a new fee-paying loan for the old loan; a default substitutes a no-fee-paying <em>problem</em> for the old loan), and makes everyone’s prepayment models go whacky-looking. This is one reason why it obviously wasn’t a good time for MBS traders to be told they’d be suddenly getting jumbos in their conforming pools; at some level the response to that could be summed up as “we don’t need one more thing that defies analysis.”





Ultimately, there is no way anyone can mobilize “social acceptability” as a defense against the ruthless put (even if you wanted to). The industry has, in fact, created the conditions in which it’s rational, and as long as it’s rational it will go on. Just as it was rational to buy at 100% LTV. The only possible way to get back to an environment in which ruthless default is rare is to abandon the “innovations” that give rise to them: no-down financing, wish-fulfillment appraisals, underpriced investment property loans, etc. The administration is currently pushing for increasing the FHA loan amounts and the FHA maximum LTV up to 100%. This is not likely to remove the incentive to take another reckless loan on a still-too-high-priced house. If we aren’t going to ration credit with tighter guidelines and loan limits, then it will have to be rationed with pricing: eventually the models will “solve” the problem by increasing the costs of mortgage credit. You cannot simply keep writing “free puts.”
 
<p>Don't the risk pools effectively just get combined? This would likely mean the (old) jumbos come down slightly and the (old) conformings rise.</p>

<p>This doesn't dispense with any of the risk, but averages it out.</p>

<p>SCHB</p>
 
<em>"Don't the risk pools effectively just get combined? This would likely mean the (old) jumbos come down slightly and the (old) conformings rise."</em>





Yes. This is exactly what happens.
 
I figured as much.



The whole "economic stimulus package" is hooey anyway (just like the rebates are really going to help the economy, just like bailing out people who are about to foreclose, just like freezing adjustible rates is great, just like dropping interest rates is the best thing since sliced bread, and just like lumping jumbo mortgages with conforming mortgages will really reduce the foreclosure rate).



Since I have a 30-year fixed jumbo (I did not buy the I/O hard sell of our builder) and I've been making my payments, I just selfishly asked to see if there was any way I could drop my payment any.
 
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