Ed's Blog

On the eve of Valentine’s Day, President Bush showed a lot of heart in approving and signing into law the Economic Stimulus Package. While there are plenty of arguments both for and against this plan, my philosophy has always been that if there are those who support a proposal and those against it, it’s generally fair for both sides.

Now that’s not to say that the package is perfect, but it will right some obvious inequities in today’s mortgage lending practices. The most obvious inequity being righted will benefit high cost states such as California. Here, countless buyers will be able to obtain a larger mortgage loan, without being subjected to higher interest rates.

Here’s a step by step breakdown of what this means, and what we can expect next:

· The increase will be temporary. It will be available for loans originated from approximately July 1, 2008 thru December 31, 2008. The House and Senate will be working on making it permanent, but there are no guarantees.

· It will take a bit of time to be implemented, as the following points illustrate.

· The Department of Housing and Urban Development (HUD) is charged with defining and establishing the median home price in all markets across the US. They have 30 days to do this.

· Fannie Mae and Freddie Mac (known as Government Sponsored Entities or GSE’s) will be allowed to raise the limits on conforming loans that they will purchase up to the lower of $417,000 (the current limit) or 125% of the area median home price up to $729,750. So, for example, if the median home price in San Francisco is $600,000, then the new conforming loan limit would be $729,750. That’s because 125% times $600,000 equals $800,000 which is above the $729,750 maximum allowed.

· Fannie and Freddie will have to publish guidelines on how they will underwrite and purchase these new larger conforming loans. (Estimated to take 60-90 days.)

· Lenders will have to determine how they will implement these guidelines before they make any of these new higher dollar conforming loans. (Estimated to take 30-60 days.)

· Likewise, The Federal Housing Authority (FHA) will temporarily increase its limits as well. It’s widely believed that their increases will match those of the GSEs.

· The maximum limit that either the FHA or GSE’s will raise their limits to is $729,750.00. That limit will be available for high cost areas only.

· Prior to the signing of this package, the conforming loan limit was $417K. Meaning, that borrowers seeking a mortgage loan greater than $417K, were forced to obtain a jumbo loan. Jumbo loans are more difficult to obtain, and come with higher interest rates.

· For hundreds of thousands of people living in areas where the median home price is more than $417K, this means that they may now qualify for a conforming loan.

· Homeowners and buyers in areas where the median home price is less than $417K will not see the loan limits in their MSA increase.

I’ve said it before, but it bears repeating. If you are looking to refinance or purchase a home, start compiling your paperwork now, because as soon as lenders receive the guidelines from the FHA and GSE’s, there will be a surge of people refinancing, and obtaining purchase loans.

For your convenience, a checklist of items you’ll need can be found here: http://www.smithcraine.com/LoanAppChecklist

By the way, we’ll soon have the loan limits for all MSA’s, so feel free to call us to find out if the limits in your area are going up. We can always be reached at 415-406-2330

Happy Valentine’s Day!!!

We all know by now that the Economic Stimulus Package has been signed into law. After all of the hoopla surrounding the approval of this package -which will raise the conforming loan limits in many areas in California to just under $730K- it’s become clear that many homeowners and buyers feel that the plan was a whole lot of talk, and no action.

It’s understandable that many people feel this way, so I wanted to clarify what is currently taking place as a result of this new plan. Rest assured, the benefits are on the horizon, we just have to be a little patient.

Here’s What We Are Waiting For:

· The median home prices in each geographic area need to be determined, so as to accurately determine the conforming loan limit for each area (also known as MSA or Metropolitan Statistical Area.) HUD has until March 14, 2008 to make these determinations. This is no easy feat, as home values are declining in many markets, so trying to ascertain the correct median home value for an MSA is an enormous undertaking. Once this is published, the new conforming limits for each MSA can be calculated.

· Once the limits for each MSA are determined, interest rates need to be determined. The expectation is that the rates for new conforming loans will likely be less than current “jumbo” rates, but may be slightly higher than rates for loans under $417K. We’ll just have to wait and see.

Here’s A Glimpse of What’s To Come:

· By July, we can expect to see all of the new loan limits in place, and lenders approving applications that meet the guidelines. (This could happen sooner, but don’t hold your breath!)

· The increase in the conforming limits will be temporary. The current thinking is that the temporary increase will only last through the end of 2008 and will not be extended. But stand by on this issue.

Here’s What You Should Do Now To Get Ready:

· Start compiling your loan application paperwork. Lenders, underwriters and brokers are going to get VERY busy, as soon as the aforementioned changes take place. You ought to spend time now getting ready to submit your application, so you can apply for your loan the minute the new limits are in place.

· Check your credit (or have us do it for you.) It’s amazing what a difference cleaning up your credit can do. Confirm that there are no inaccuracies on your report, or ask us for help in removing damaging items from your report. This will improve your chances of being approved for a loan.

· Call us today! We’ll provide you with a loan application check list, referrals for appraisers and tips to make sure you make the most of the opportunity that is about to present itself.

With legislators showing a united front in their efforts to help homeowners and buyers, it’s now just a matter of being ready and patient, and before you know it, you’ll be off and running towards a new home purchase, or a money saving refinance.