At a time when the economy needs a shot in the arm to revive, it would seem that the government and big mortgage lending seem to be at odds. As the "mortgage meltdown" continues to grow, lenders are continuing to tighten guidelines at a record pace.
As fast as the government can find ways to relax FHA and conforming guidelines and lending limits, the big lenders are finding ways to protect their interest and tighten the things they have control over. The net effect: a continued de-stimulation of the housing market.
The Government wants lenders (and their shareholders) to continue to write down the problem. The lenders want the government to step in and bail them out. Neither side is moving nor is the housing market, which finds itself in a stalemate.
Some of the rumored changes that lenders have in the works, which will negate the intended effect of these governmental "Stimulus Plan" changes, include tiered pricing on loans above $417,000 for instance.
The government, as part of the economic Stimulus plan, approved the increasing of the lending limits (TBD on March 14th) above the former conforming limit of $417,000. Initially it was thought that a large number of people would benefit from the lower conforming interest rates. WRONG again if the lenders have their way. They have been kicking around the idea of having tiered conforming pricing (NOT JUMBO) on loans between $417k and the new conforming limit. This would significantly reduce the benefits of the higher limits.
It would look something like this:
Today's Interest Rates from You Friendly "Not Jumbo" Lender: (this information is for demonstration purposes only and not an indication of available rates) (Fun Legal stuff)
Conforming 30 Year Fixed Rates
Up to 417,000 5.875%
"Not Jumbo Tier 1 up to $450,000: 6.250%
"Not Jumbo Tier 2 up to $500,000: 6.500%
"Not Jumbo Tier 3 up to $550,000: 6.750%
And then there would be "Real" JUMBO loans: 6.875%
Another example of guideline changes to counteract looser lending guideline is FHA loans in general. FHA Loans have NOT been credit score driven in the past. WELL, now YOUR CREDIT SCORES MATTER. If you have below a 580 credit score you will now be penalized by higher interest rates than everyone else. Sounds obvious right? Historically a borrower's credit score did not matter, and as long as they were able to prove the ability to repay the loan they got the FHA rate of the day, the same as everyone else. Not anymore.
Banks have a right (a duty in fact) to protect their investors interest and our government has the onerous task of trying to keep our sinking economy afloat. Until the interests of these two parties are aligned, we will not see notable improvement in the housing sector of our economy. 
The entire housing market was having a lot of fun in the frenzy of the last boom and the entire US economy benefited from the" HAPPY DAYS". Now it seems like a battle of who should pay to clean up the mess after the party is over.
You need a reputable and trusted advisor in the mortgage business to help you navigate the rough waters ahead. If you or someone you know has any question you can contact me anytime (telder@tomelder.com) and I would be happy to assist you. You can also visit our Virtual Loan Department Online at http://www.tomelder.com/, where you will find many useful resources.
STAY TUNED FOR NEXT WEEK"S RELEASE OF THE NEW MORTGAGE LENDING LIMITS. FRIDAY THE 14TH, 2008 * SUBSCRIBE TO THIS BLOG NOW SO YOU DON"T MISS IT!
©Copyright 2008 Tom Elder
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I'm not sure that the government getting more involved will clean up the remains of the party. And, much of what is being talked about would just be keeping the littler on the floor longer while it is slowly picked up instead of letting the party-goers clean up after themselves on the way out.
The bottom line is that there is an increased risk with mortgages right now, and the lenders have to price that in. Higher loan, higher risk.