Ed's Blog

In the last couple of weeks we’ve started to see a little movement toward better pricing and underwriting for the new “conforming jumbo” loans (those loans from $417,001 to as high as $729,750). Even though this is happening, albeit slowly, I believe we need to keep the pressure on politicians, lenders, and Wall Street to improve the pricing, underwriting, and availability of these loans.

I’d like to share with you a call to action we created at the California Association of Mortgage Brokers. Feel free to pass it along to your legislative representatives and media contacts.

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While the California Association of Mortgage Brokers (CAMB) welcomes the new higher conforming jumbo loan limits that were approved by Congress, these loans are currently having far less impact than homeowners need in these tough times. We call on legislators, regulators, lenders, and Wall Street to take the following steps so that these new loan limits can have the far-reaching positive impact that was intended for borrowers in high cost areas.

1) CAMB calls for legislators to make these new higher loan limits available permanently. Residents of Hawaii and Alaska have enjoyed higher conforming loan limits for years. These loans have performed well for lenders, borrowers, and investors alike. Borrowers in other high cost areas should enjoy the same opportunity to have conforming loan products available to them.

2) CAMB calls on regulators and Fannie Mae and Freddie Mac to adjust the guidelines on these new conforming jumbo loans. Currently the underwriting guidelines are far stricter than those for conforming loans in non high cost areas. The result is that many otherwise qualified borrowers are unable to take advantage of the relief that these loans would provide. We ask that these loans be underwritten to the same standards as standard conforming loan amounts. These guidelines have worked well, including in Alaska and Hawaii where higher loan limits have been in place for years.

3) CAMB calls on lenders to ramp up their production capabilities for the new conforming jumbo loans. To date, most lenders have not made these loans available for their most automated and streamlined underwriting processes. Making this change will help speed up the approval process for borrowers.

4) CAMB calls on Wall Street to price and buy these at rates and prices similar to those for standard conforming loans. For years, higher conforming loans from Hawaii and Alaska have had the same interest rates and costs as standard conforming loans from other states. We believe that these new higher loan limit conforming jumbo loans deserve pricing that is on a par with what consumers pay in Hawaii, Alaska, as well as all other states for standard conforming loans.

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I just wanted to comment on a couple of significant issues that have taken place this week.

The market swings are continuing to defy logic, but the following occurrences could indicate that stabilization may be on the horizon yet!

· After the FED bailed out Bear Stearns, the markets panicked. Many assumed this was indicative of the unavoidable second coming of the Great Depression. Au contraire! News arrived almost immediately that Lehman Brothers Holdings actually raised $1 Billion more in liquidity than predicted (in one night!) What does this mean? It means that investors are still investing in financial institutions, though with caution.

· This week, mortgage rates have stabilized a bit. The gap in interest rates between the new “conforming jumbo loans,” and conventional loans is narrowing. However jumbo loans are still higher than we’d like to see. All the same, better pricing is a great indication of stabilization.

· The talk of overhauling our financial regulations hit a peak in the media Monday, insinuating the reform was imminent. Of course, with all things legislative, this financial overhaul will take time. Thankfully, it doesn’t appear that any hasty decisions will be made. This is fantastic news as the chance of an over correction (sparking new housing woes) are reduced.

· Finally, on the first day of Q2 stocks rallied, Wall Street surged and the Dow closed way up from predictions (more than 390 pts to be exact.) That was no April Fool’s joke! This is leading many to think that we may have seen the worst of the credit crunch.

I’ll continue to do my best to keep you informed of significant market changes. Please don’t hesitate to contact us directly though, for answers to any of your mortgage questions. We’re here to help you navigate these turbulent waters!