Conforming Loan Limts For 2008 - Market Chatter 02/15/08

From A Colleague:

Speaking of different areas of the country, most people think in terms of country, state, county, town, street, even zip code. But “MSA”? The new conforming loan limits discuss Metropolitan Statistical Areas. For the complete list, which also shows the counties included in each MSA, click here. Remember that OFHEO, to the best of my knowledge, has not ruled on whether or not ARM loans are included, nor 2-4 units, nor IO loans. And therefore neither have Freddie Mac or Fannie Mae, and therefore neither have any investors.

“Median”: the middle number in a given sequence of numbers. (4 is the median of 1, 3, 4, 80, 90). Speaking of MSA’s, here in California, the median income (half below, half above) was $64,563 in 2006. The top county – Marin – had a median income of $99,713. So it would appear that, to take advantage of the new limits, loan agents will be focusing on borrowers with much higher incomes than the median. In a full doc scenario, with reasonable debt-to-income levels, a borrower earning $100k per year may not qualify for a $700k loan. Perhaps an income, under the most generic of underwriting & borrower criteria, of something above $125k would be needed to get a DU approval for the new loan amounts.

Doug Duncan, chief economist for the Mortgage Bankers Association, says it will take lenders three to six months to make technical changes so their systems can process the larger loans. And after that, Wall Street investors still must determine the risk of buying these bigger loans. Doesn’t that put us into 2009? So interest rates might not come down as much as some hope, Duncan cautioned. "On balance (the stimulus package) is a plus," he says, "but I would not expect immediate or dramatic change in the near term."

What’s the big deal with FHA loans? Currently the FHA program has no declining value adjustments at the government level, has low down payment and loan to values as high as 97%, cash out refinances allowed to 85%, rate and tern refinances to 97%, total down payment can be a gift, no credit score requirements, no income limits or sales price restrictions, FHA loans are assumable, seller concessions may be as high as 6%, no cash reserves required, non-occupying borrowers are allowed with blended ratios (SFR only), non taxable income (including child support) may be grossed up, and bankruptcies allowed after 2 years. We’ll see if investors continue allowing all of these with $729 loan amounts, of if they add “overlays” to restrict underwriting.

Quetions? a me.