I am absolutely thrilled that HUD raised loan sizes for FHA and would like to see these changes made permanent. Most of my business is obtained in Arizona and California which are categorized as declining markets-thus being subject to ltv restrictions. These restrictions on loan to values mean that more and more borrowers are needing to finance their properties as FHA loans. Many of these borrowers have credit scores above 700, plenty of reserves and can qualify for conforming....if they had a Dolorian hooked up to a flux capacitor that would allow them to travel back in time and do a conforming loan with little down.

Earlier in the year we were stuck in a tough situation where these borrowers could not qualify conforming yet they wanted to purchase a higher priced home with a mortgage that was above the FHA loan size limit. Finally in March the new loan size increases were put in place which should qualify more borrowers for homes and help our market to rebound. Anecdotal evidence would support this as I have been busier prequalifying borrowers over the last 2 weeks than I was the previous 2 months. I doubt we see the frenzy from the past few years when too many borrowers were qualifying for loans (you remember the 100% ltv, 600 fico,stated income, no asset, foreign national, investor pretending to be purchasing a primary residence). What we should see is a return to normalcy, as more full doc borrowers at low debt to income ratios begin to obtain housing. What makes these borrowers even stronger is that they buying at what many analysts consider to be the bottom of the market and should see moderate appreciation.

What is disheartening is to see that the larger FHA loan sizes are being priced with tremendous rate hits due to the increased exposure of a larger loan. While I can not argue that there is greater risk to a portfolio if a jumbo loan was to default, I think that there are also advantages to jumbo loans. For example, most jumbo loans are backed by stronger collateral than a traditional loan. Would you rather try and recoup your losses on a custom house in a great neighborhood with good schools or an average house in a working class neighborhood? I do not mean to come across as an elitist or offend anyone, I am merely making a point about the strength of the collateral for many of the jumbo properties. Secondly, the typical borrower who is obtaining a jumbo fha loan is going to have a much larger amount of disposable income. I have a borrower looking to refinance out of a neg-am loan into a fixed rate with me. At a debt ratio of 43% on a $650,000 loan amount, we are looking at around 20k per month in income. Her disposable income is much higher than a borrower who qualifies at 43% dti for a $250,000 loan. Her assets are also much higher. From a common sense perspective, I would rather lend her money than the average borrower.

I see nothing wrong with increased pricing for jumbo loans on FHA but I can not understand why the hit for a jumbo is 2.25 points with many of the investors but the hit for a manufactured loan is only 1/2 point and some lenders don't even increase the rate for a non-occupant co-borrower. It seems to me that the these loans would come with greater risk. I'd like to see this change. In the meantime, I will continue to quote the higher jumbo rate to my borrowers.