Impact of today's announcment for conforming loan size

Mortgage and Lending with Franklin Loan Center


For those of you that don't quite understand the impact of today's announcement please read on:

What does "Conforming" mean?

First of all, let me briefly explain what "conforming" means.  "Conforming" is the term used to describe loans that meet all the Fannie Mae and Freddie Mac guidelines.  One of the major guidelines that have caused lack of liquidity in the market is the loan size guideline.  It is currently at $417,000.  For those of us in the valley most homes are priced much higher than that and the loan required to purchase these homes is higher than $417,000. 

What was the mortgage market like before and after August 2007?

In recent years the pricing between a conforming and a non conforming loan were similar, and at times the conforming pricing was much better.  As of August this changed drastically.  If the loan doesn't meet Fannie Mae or Freddie Mac guidelines today the interest rate is much higher.  For purchases and refinances this has put a huge dent in the side of our business.  Less people qualify for a purchase and can't buy, or are waiting on the sidelines before they jump back in.  In terms of a refinance this is huge because some borrowers who were planning to get out of their ARM's and into a Fixed rate loan haven't been able to do so since August. 

What was the announcement?

As a part of the Economic Stimulus package proposed by the Administration and passed in the House yesterday the FHA is taking on a larger role in an effort to help the housing market.  The major announcement within this package is that the maximum conforming loan size of $417,000 will be raised.  The exact number at this time isn't known but according the AP the number will be around $625,000.

What does this all mean? 

This should cause an immediate reduction in interest rates for loans up to $625,000 because they can now be purchased by Fannie Mae and Freddie Mac on the secondary market and are considered less risky to loan originators and mortgage banks.  The loan limit should be raised somewhere in the middle to end of February. 

Get your buyers pre-approved before shopping and when the rates come down we'll lock it in. 

Comments (2)

Tamara Davis
Manhattan Properties Inc. - Dallas, TX
thanks for the clarification....
Jan 25, 2008 06:50 AM
Cassie Hansley
Wilikinson and Associates - Lincolnton, NC
thank you for the information.
Jan 25, 2008 06:54 AM