Jumbo & Conforming Loan Limits - More Market Chatter 5/8/08

A big wet blanket got thrown on the whole idea of the new conforming loan limits when we realized that the banks were going to take advantage of the new limits to off-load some frozen pipeline to Fannie Mae and Freddie Mac, but not turn around and extend the offer to the consumer. As a result, we saw a new market form between Conforming and Jumbo sized loans - the new "Agency Jumbo", "Conforming-Jumbo", "High Limit Conforming", or whatever you want to call it - the names are all over the place. But banks priced these much closer to the currently-dysfunctional Jumbo market rates - with 30 year loans pricing at 7% and higher.
But not any more! Here is some fresh news from a colleague:

Fannie Mae threw some chum into the water for loan agents in high balance areas, saying that it will buy jumbo mortgages for the same prices as smaller loans. Some random notes:

• Fannie is expecting the benefits of the price improvement to be passed along to the consumer. The intention and spirit of the price change is to improve the rate for the borrower, not to present an arbitrage opportunity. Fannie’s policy is that for loans already in pipeline lenders can float the borrower’s rate lower or sell already closed loans at the originated market level - they will not buy closed loans at flat to conforming. Other investors have yet to announce firm guidelines regarding those loans already locked in.

• Credit pricing is unaffected, and all adjustments still apply, including the 25bp for fixed rate, 75bp for ARMs, and the 25bp adverse market delivery charge.

• Fannie Mae approved seller/servicers should see approximately a 37bp yield improvement for the jumbo-conforming fixed rate and a 20bp yield improvement for the jumbo-conforming 5/1 adjustable rate whole loan postings.

• Fannie Mae Trading Desk will buy jumbo-conforming adjustable rate securities at levels flat to where they are bidding conforming ARM securities.

• Fannie also announced that they will handle refinancings of non-delinquent mortgages for as much as 120 percent of property values when it owns the existing loans.

• Some investors made the change effective immediately and reduced the spread from 150 basis points down to 50 bps, of which 25 bps is a direct fee to Fannie Mae.

• Manual u/w is still required, DU can be run but it must meet the product overlays.

Questions about what any of this means TO YOU? Email me here! This appears to be legitimate, real positive news. For the first time since the crisis began back in August, we are seeing 30 year rates near or even below 6% at the new conforming limits in high cost areas!