Rates are up today. ADP reported that private jobs created in September were double what was expected. Stocks and bonds are up in response. Today’s rates with no lender fees are 4.0% on a 30 year fixed, 3.375% on a 15 year fixed, and 2.75% on a 5/1 ARM (click here to get the details).
In yesterday’s episode, I covered the recent changes to the USDA loan. Today I’ll discuss the decrease in the maximum loan limits for Fannie Mae, Freddie Mac and FHA.
I push it to the limit in today’s video:
If you want to check your maximum mortgage limit for an FHA loan, click here.
There are two different sets of mortgage limits you should be aware of. One is for conforming loans, and the other is for FHA loans.
Conforming loan limits
This conforming loan limits will be reduced in about 250 different counties on a sliding scale. This means the reduction will not be the same for everyone. The maximum loan size will fall from $729,750 to $625,000. Other counties with loan amounts above the standard $417,000 maximum conforming loan limit will also see declines.
FHA loan limits
FHA limits will fall in around 600 counties. The limits now range from $271,051 to $625,000. These are all based on the county you live in and the type of property you are buying. It is also possible that the FHA loan amount will fall more than the standard maximum conforming loan limit. In California the FHA limit has already dropped from $500,000 to $355,350.
This type of change will put people in a tough spot. Someone in California that was going to buy a $500,000 house with a 3.5% down on a FHA loan now has to put down $150,000 or get a conventional loan and still have to put down around $80,000 on the house. That is a huge change for that buyer, and he most likely not buy a house because he isn’t getting favorable terms that would make his house more affordable.
People could still get a jumbo mortgage over the $417,000 loan limit. Unfortunately, jumbo mortgages are more expensive and have worse rates. In most cases, the rate is at least 0.75% worse than regular conforming rates.
This type of situation will not help the housing market; it will only stall it or make it worse. Any homes that are affected by these changes will take longer to sell or won’t sell at all. The housing market does not need that this right now.
Before you grab your torches and pitchforks, let’s talk about why the government made these changes. This is an attempt by the government to privatize mortgage lending. If Fannie, Freddie, and FHA don’t have a good product for these clients, it gives the private sector a chance to step up and say “I want those loans.”
Banks and the private market for securitized loans could pick up more business if they start lending to this niche clientele. Will they take advantage of this?
Only time will tell.
The only problem with the government’s attempt to privatize mortgage lending is that it almost always means higher costs for customers.
I live and lend in an area that isn’t affected by this change. However I think it is wrong for the government to make changes to an extremely sensitive market. If these changes eliminate 40,000 borrowers, it just means it will take much longer for the housing market to recover.
Let’s change the way people shop for a mortgage…forever!
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