If you have been following the mortgage market's tribulations, you must know that Jumbo loans have become a scarce commodity: rates have gone through the roof and the availability of funds is notoriously absent. Fannie Mae and Freddie Mac, the two government sponsored enterprises (GSE) that account for 40% of the mortgages issued are limited to buying mortgages that do not exceed $417,000 for single family homes. This limit does not take the specific markets into consideration: California and Mississippi properties are treated the same as an example.
A simple review of listing in those two States will show that the average home in California is priced well above half a million dollars making every loan a Jumbo.
Government programs such as FHA and VA have limits that are even lower: the maximum single family home insured by FHA in Illinois (Cook County) is $275,200 , and that amount has been in effect since 2005.
We all know that home prices have increased during the most recent past to the point where existing loan limits set for the GSEs and FHA are no longer adequate. By lifting the loan limits, more borrowers will become eligible for financing: some jumbo customers will have access to the new conventional rates and FHA will be able to insure those loans that are currently out of its set zone of action. The combination of the increase with ongoing programs, will result in stabilizing the market.
The Fed's new found policy of rate reduction alone is not sufficient because it does not address the loan limits which are outside of its stated mission.
In conclusion, higher loan limits and low rates will solve some of the problems we are now facing. Foreclosures are a reality in our system but the current trend may be slowed or even reversed.
Let us know what you think, send your comments and suggestions to info@p2funding.com
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