Let's take a look at the effects of the economic stimulus package on the mortgage industry and how it may filter down to the consumer.
The US Senate has passed the Economic Stimulus Package and the President is scheduled to sign it into Law which means that we are one step closer to the implementation of higher FNMA/FHLMC loan limit. As is with most laws, the written word does not dictate to the "market" how to apply these changes.
Uncertainties remain:
Will the entire country be allowed to move to the higher loan limits? The method for determining which geographic area will move to the higher loan limits has not been determined. Most consumers believe that the loan limits will be applied across the board to the entire country. FNMA/FHLMC however are not setup to apply loan limits in that fashion. Will they do it by state or by Metropolitan Statistical Area (MSA)?
Product & Program Variety:
It has not been determined which products and/or programs will be available for the increased loan amounts. Will it be for 30 year and 15 year fixed rates loans only? Will investor properties be included? Can "Expanded Approval" or "Flex" product loans become eligible even though they carry higher risk?
Pricing and Delivery:
Pricing and delivery is another missing piece of the puzzle....(Warning, behind the scenes mortgage content included here) In the mortgage industry, the loan pricing dictates the wholesale rates and the delivery refers to the method that the Mortgage Backed Securities (MBS) are pooled and sold on Wall Street to the public.
The Securities Industry and Financial Markets Association (SIFMA), not HUD or FNMA/FHLMC, decides which loans are eligible to go into the FNMA MBS's. Blending the old and the new models will create a great deal of uncertainty in the marketplace and this alone will affect pricing and rates. Even though we do not know how much of a premium will be applied to the new loans, it should be a significant improvement over the current 30-year jumbo rates.
Stay tuned as our free market economy figures out how to adjust to the new FNMA & FHLMC Loan limits and what effect it will have at the consumer level.
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