November 8, 2011

DEBATE RESUMES: Conforming & FHA Loan Limits 2011-2012

November 8, 2011

DEBATE RESUMES: Conforming & FHA Loan Limits 2011-2012

As of October 1, conforming and FHA limits were cut to $625,500 (or lower depending on region) from $729,750. But the debate to raise limits again is resuming Washington. Where we left off October 20, the Senate voted to restore higher limits on loans eligible for government backing.

The October 20 vote was on an amendment to a larger spending bill that still must pass in the Senate, and if so, it would go to the GOP-controlled House, which may stop this effort by arguing that reducing loan limits helps shift mortgage market from government to private markets. CNBC reports that the whole bill “needs to be law by November 18″ so this debate will heat up.

I agree that private markets, aka Wall Street, won’t step in full force on buying mortgages from banks as long as loan limits are higher. And why would mortgage originators look to private markets when they have a more profitable government option to sell loans to?

But that said, it’s not as dire as politicians say. Consumers have great options for jumbo loans above $625,500.

I’m a mortgage lender here in the jumbo loan land of San Francisco, and I have very competitive jumbo products available to me and my clients. So do my competitors who are with other credible firms known on Wall Street for their quality of underwriting.

There’s always a market for mortgage securitization if the underlying loans—both borrowers and properties—have been scrutinized by origination teams who know what they’re doing.

The smart Wall Street money knows where to find quality originations to buy. And the quality originators have power to negotiate low pricing for consumers because they’re the source of that business for Wall Street.

Lots of powerful lobbies including the NAR are lobbying for higher limits. And if they get their way, I’m certainly not going to complain. Rates on jumbos are still higher than the super-conforming loans to $625,500.

But to make it out like it’s this macroeconomic catastrophe if we don’t again raise loan limits from $625,500 to $729,750 is just untrue. And silly actually. The market can—and does today—provide great opportunities for jumbo consumers.

IMPORTANT NOTE: Chatter in Washington over loan limits will create confusion, but the link below contains loan limits and rates available now with all U.S. lenders. End of story.
2011 Conforming Loan Limits & Rates
CNBC: Loan Limits A Constant Volley