One of the initiatives introduced as part of the Economic Stimulus Act of 2008 involved the government sending checks to taxpayers to stimulate the economy. I think we’re all in favor of the government’s generosity, and look forward to receiving our checks.
Another one of the initiatives pertains to the mortgage market. It establishes temporary increases to conforming loan limits in “high-cost” areas, as defined by the Department of Housing and Urban Development (HUD). This is considered to be a constructive effort by the government to help address the ongoing credit crunch.
For the last three years, the conforming loan limits have been $417,000 for single family homes, with higher limits established for two- to four-unit properties. These limits are established annually by the Office of Federal Housing Enterprise Oversight, and are based on changes in the median home prices from one year to the next.
Conforming loans are loans that “conform” to the standards established by Fannie Mae and Freddie Mac, government-sponsored entities that purchase these loans from lenders.
On March 6, the Office of Federal Housing Enterprise Oversight released the maximum conforming loan limits that will be in effect through the year. This enables Fannie Mae and Freddie Mac to temporarily raise their conforming loan limits in certain high-cost areas. The new jumbo limits are a function of median home prices as estimated by HUD.
The loan limits vary depending on geographic area. HUD has defined 71 metropolitan statistical areas, including more than 245 counties that are affected. The newly increased limits range from $417,500 in Greeley, Colo., to the highest of $793,750 in Honolulu.
Nearby, San Jose and San Francisco have loan limits of $729,750 for single-family homes because their homes are more expensive than our local area.
In Placer and Sacramento counties, the temporary jumbo conforming loan limits are:
One Family: $ 580,000
Two Family: $ 742,500
Three Family: $ 897,500
Four Family: $1,115,400
With this temporary increase, there are still some unanswered questions. For instance, will these loans be eligible for the same low interest rates that apply to conforming loans of $417,000 or below? Maybe not, because these loans may not be marketed in the same secondary market pool as the normal conforming loans because of their higher risk. Another question is whether Fannie Mae and Freddie Mac will purchase loans for two to four units. The answers remain to be seen.
It’s encouraging to see the government continuing to implement legislation to stimulate the mortgage and housing markets. Also, it will be fun to get our checks from the government as the other part of this economic stimulus package.
Mike Ferguson is with Windsor Financial Services located in Granite Bay. His Web site is www.windsorFS.com