Included in the stimulus package announced last week are provisions that will have a significant impact on the struggling mortgage origination. One will raise the cap of mortgages that can be insured by FHA and the other will temporarily increase the loans that Fannie Mae and Freddie Mac can purchase. Although the limits are yet to be defined, those provisions will bring some needed relief to borrowers wanting to purchase or refinance their homes.
FHA insured loans.
These are loans made by lenders to borrowers who do not meet the conventional guidelines. In order to encourage lenders to issue these loans, FHA insures a portion of the loan. Credit scores, loan-to-value parameters are higher than with conventional loans but the loan amounts are less than the $417,000 limit. By raising this amount, more borrowers will qualify for this type of financing. This is good news for borrowers who took subprime loans because their loan amount where above FHA limits but their credit and income were not sufficient to qualify for conventional financing.
FHA insured loans are full documentation and the limits vary by market. High cost areas such as Hawai and Alaska have higher limits. Fannie Mae and Freddie Mac have the same limits nationwide.
Fannie Mae and Freddie Mac loans.
These two government sponsored enterprises are prohibited from purchasing what is known as jumbo loans. Any loan over $417,000 falls into that category and the difference in price varies from 3/4 to 2 percentage points. This segment has been hit very hard because lenders consider these loans as presenting greater risks.
Raising these limits even temporarily will help those borrowers who are priced out of the market.
Global impact.
The combination of low rates and raised loan ceiling by FHA and the two GSEs is a step in the right direction and a long awaited action from the government. This of course will not solve the housing crisis. We are still going to have foreclosures because some home owners will not be able to qualify for refinancing.
The Senate and the House have different versions that need to be reconciled. At that point we will be able to assess the true impact of these measures. In the meantime, low rates are helping some borrowers refinance or purchase new homes. Most conventional 30 years mortgages are still below 6%.
How low are the rates going fall remains a mystery but do rates really matter?
Send your comments and suggestions to info@p2funding.com
No comments:
Post a Comment