For buyers in the most expensive housing markets, the rules concerning “conforming” mortgages have been confusing over the last year or so. Conforming mortgages are eligible to be purchased by Fannie Mae and Freddie Mac, the two government-run companies that together own or guarantee most home mortgages. One benefit of a conforming mortgage is the all-important interest rate: mortgages whose values exceed a specified amount are not conforming and typically carry interest rates that are ¾% or more higher than conforming mortgage rates.
Last year, the conforming loan limit of $417,000 was raised – but technically, it wasn’t. According to a colleague of mine who’s a mortgage broker, what actually happened was that a new class of loan – “Conforming Plus” – was created with the same rates and terms as a conforming loan, but with a higher loan limit. Conforming Plus loan limits were raised on a county-by-county basis, depending on the median sales price in an area; here’s a link at Fannie Mae’s web site that provides access to loan limits by county.
Back then single-family conforming mortgage limits within the continental U,S. were adjusted as high as $729,750 in the most expensive areas of the country; in Middlesex County, MA the limit was raised to $523,750. At the beginning of 2009, the limits went down again in most areas, with Middlesex County’s “Conforming Plus” limit dropping to $465,750 and areas like New York City and San Francisco maxing out at $625,500.
The American Recovery and Reinvestment Act (ARRA), signed into law last month, moved the Conforming Plus mortgage limit back to the levels that were in place late last year (provided this does not result in a reduction; in a few areas, loan limits actually went up at the beginning of 2009). However, there’s a catch: you can’t benefit from the new limits yet. My friend informs me that the increased limits have not filtered down from the paperwork mills at Fannie and Freddie to the lenders, and it will probably be a few weeks before you can actually get a mortgage with the new limits.
This creates a small dilemma for borrowers who are close to applying for loans. If you stand to benefit from the new limits, waiting for the increase is probably beneficial, but your lender might get more skittish in the interim and tighten its qualification requirements. For example, in January the NY Times reported that some banks were requiring new borrowers to show that their liquid assets were equal to 25% of the mortgage face value.
Members of Congress have been fuming for months over their perception that banks are not lending generously enough, but it would be difficult for the government to enforce easier loan qualification rules without actually taking control of specific lending institutions. Then again, it may eventually be remembered that loose loan qualification guidelines were a big part of what got us into the present financial mess in the first place….
image by: woodlewonderworks