How The New "Conforming Jumbo" Program Has Fared

Posted by  on Apr 16, 2009
On February 13,2007 the President signed into law the Economic Stimulus Act of 2008 that includes a temporary increase in Freddie Mac's conforming loan limits in high cost areas, as defined by HUD known as HR5140.   This raised the conforming mortgage loan limit to $729,750 from the existing $417,000, but only for certain areas of the country and only effective until the end of 2008.  The rules for qualifying for the new limit are more strict than inthe past, with stringent loan to value limits, limited cash-out refinancing values, tougher stances on credit scores and rules against late mortgage payments. 

Over the last few months we have seen lenders quoting rates based on the new "Conforming Jumbo" loan limits which are slightly lower than their quotes on the "normal" Jumbo non-conforming loan limits by an average of .30%.   The major problem with HR 5140 is three fold.  One, with new and more strict rules and regulations to qualify, many homeowners do not qualify for the new conforming Jumbo program. 

Secondly, because the new FNMA limits are restricted to 125% of an area's median home price, only about 20% of the larger statistical areas of the country are even eligible for an increase in loan limits and only six were eligible for the maximum limit increase to $729,750 - five Counties in California and one in Hawaii. 

The third drawback we have seen is the rate differential between conforming Jumbo programs and traditional Jumbo programs is less but still substantially more than conventional conforming products offered by lenders.  On average the basis point spread between conventional conforming programs and conforming Jumbo programs is 1% which is still a substantial amount over the life of life of your loan.

While it was a good first step for Congress to take, it did not necessarily help save the the over-priced, over-valued housing market.


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