The Stimulus Package and King George

Given what the financial markets have been through in the last year, it is important to stay on top of new information as it becomes available.  As you are probably aware, the "Economic Stimulus Act of 2008" has been passed by both the House and the Senate and now awaits the almost-certain Presidential signature expected tomorrow.  After the signature, then what? 

Well, in addition to the tax rebates you've heard so much about, H.R. 5140:

• Raises the FHA and conforming loan limits to the lesser of $729,750 or 125% of an area's median home sales price. 
• Only six areas in the country will see the $729,750 limit:  5 in CA - the areas of San Diego, San Jose, San Francisco, Los Angeles/Riverside, Sacramento; and Hawaii is the other.
• Other areas in the country will see an increase up to 125% of the median sales price or stay the same at $417,000.
• The FHA and conforming loan limit increase is meant to be temporary and is set to expire December 31, 2008 (unless it is extended which wouldn't surprise me).
• The new limits will most likely apply to owner occupied properties, 15 and 30 year fixed rate loan products, fully amortized (sorry, no interest only).
• ARMs are being considered, but most likely will end up only with one type of ARM product (for example, 5/1 ARMs).
• There will be strict credit guidelines and overlays including CLTV most likely restricted to 90% or less.           
• The limits will be effective as soon as they are signed and then it will be up to Fannie Mae to determine guidelines and pricing and the lenders to pass this on to borrowers.

While this is probably a positive step toward increasing liquidity in the markets, it is important not to over-promise the benefits.  There is still a perceived risk in higher loan amounts and Fannie and Freddie will most certainly want to be compensated for this perceived higher level of risk.  This would translate into higher fees being passed on to the consumer.  Also, there is the question of how to package the new higher loan amounts at the secondary market level and who (what investors) will buy them and in what format.   

Now we have only to wait for King George to add his special touch (as he has done to hundreds of bills before this one) before he signs it.  It may be a completely different bill when it comes out of the oval office tomorrow.