Bush Signs Economic Stimulus Package (H.R. 5140); Increased FHA and Conforming Loan Limits

Yesterday, President Bush signed a two-year, $168 billion economic stimulus package that includes revisions to loan limits on conventional/conforming and FHA loans in high cost areas. The new law boosts the GSE conforming limit to as much as $729,750 through the end of this year, and also raises FHA lending limits to the same level for high-cost areas.

Here's what the bill says:

In high cost areas, the conforming loan limit, and the upper limit for FHA loan guarantee programs, will be 125 percent of the median home price for the area, not to exceed $729,750.

In areas that are not high cost markets, the conforming loan limit will remain $417,000. The upper limit for FHA loan guarantee programs in "normal" markets will be raised from $200,160 to $271,050.

The language in the stimulus bill is confusing, and the fact is nobody can tell you exactly what will happen to loan limits in the DC Metro area/Loudoun County until HUD publishes the median home price figures that will be used to determine them.

The U.S. Department of Housing and Urban Development now has 30 days to publish a database of house prices that will be essential in determining which markets get access to the new "jumbo conforming" or "expanded FHA" loan products. Once HUD has done that, the areas affected and their new loan limits will be released.

Though the current limit for a single family home in the DC metro area/Loudoun County is $362,790, many I have spoken with have speculated that the new limit could be around $625K to $650K. But the NAR and Stanford Group have projected the limit in our area to be $547, 500. This is based on their calculations of the DC metro area median price Q3 '07 and a 125 percent increase in the limits.

Should the limits in our area increase, it could help decrease the difference between conforming and jumbo loan rates. Currently, the interest rate on a conforming loan is around 5 3/8 while the rate on a jumbo loan is around 6 1/2. That's a big chunk of change when you ammortize it over 30 years.

Some buyers are telling us that they don't want to sell/buy until the spread goes down because it doesn't make any sense financially and/or they can't afford the higher rate. Hopefully, once these changes take place, jumbo rates will come down and it will make more financial sense for those buyers to move as they hope/want to.

Another uncertainty is  what the initial underwriting criteria will be. Most expect it to at least sit close to existing "traditional conforming" guidelines, if not ending up more restrictive. If they end up being more restrictive, the new guidelines may not prove to be a benefit to some at all.

I'll keep you posted over on my Loudoun County real estate blog, Loudoun Stats.

For a copy of the entire stimulus bill (H.R. 5140), click here.