New Conforming loan limits offer little if no value to our loan clients

Mortgage and Lending with Fair Housing Resource Center

Well . . . . This week was another wild ride with lots and lots of volatility.  Today's blog is about the notion that the Government, albeit altruistic, really is incapable of solving a lot of the problems we face in this current "credit crunch." 

For weeks and weeks we were told that conforming limits would be going up and with the new limits, borrowers in jumbo loans would be able to refinance into conforming loans at conforming prices.  Bush signs the fiscal stimulas package and the excitement builds with our wholesale lenders telling us to get ready.  Many morgage originators run expensive radio ads and purchase farms and postcards announcing the new limits. 

We are all "egg-cited" as my lady friend likes to say.  But the sad reality is that now we just have plain egg on our face.  Today's blog is a reminder to always do your due diligence and always double check your guidelines. 


Here is what transpired:

I had a loan client wanting to refinance out of 15 year fixed mortgage with a balance of $300,000 who also wanted to consolidate a $180,000 home equity line of credit and take some cash-out for home improvements.  Her current loan is at 5.875% and her equity line is floating at prime.  So in great anticipation, I take the application and announce proudly a 5.50% 30 year fixed.  The loan is located in Berkely, CA so I can finance up to $729,750.  All good so far. 

Friday, I went to lock in and I research the new conforming "jumbos" as they are now called and low and behold as conforming rates are at 5.50%, the new conforming jumbos are priced at 6.50%.  So without me thinking quick on my feet I would have lost this total loan of $565,000. 

Moreover, the new conforming loans do not allow for cash-out.  As I reach out to reps, in frustration I proclaim "what is the value of this new program?"  The reps dejectedly say "there really is none!"  Moreover, although the program was announced over a month ago, many companies feel the paper is simply not worth risk.  In other words, they simply don't go along with it.  The programs are continuing to be rolled out but with little if none benefit to the consumer.

So in a mad dash, I formulate a plan which actually worked out for the better and gives the client still a lower overall financing package than first quoted. 


So . . .I structured the client's new loan as a $417k conforming first I further add a home equity line of credit at $148,000 to bridge the gap for the client. 


I lock the first as quoted at 5.50% and I register the line of credit as a fixed rate option with the first draw being the entire loan amount at $148,000.  However, I elect to float the loan for the line of credit.  Why you ask? 

With the FED cutting the Fed funds rate down to 2.25% and understanding that prime lending rate will drop from the current 6% to 5.25% on the first of April, I will be able to lock the clients second at 5.25% for 30 years fixed. 

The clients gets a lower overall cost of borrowing; however, does have to make 2 payments to the same lender. 

Although the client does benefit, the reality is that both myself and my wholesale lenders should have done a better job explaining the benefits of the new conforming limits.  Unfortunately there really are no benefits to the consumer!  Tragically, there are many people out there in jumbos who will be disappointed when they talk rates with their mortgage originators. 

For more info on this topic, simply send me a shout:


Comments (2)

Ernie Cabrera
REAL ESTATE AMERICA - Ernie Cabrera - Elk Grove, CA
Real Estate America
Mike, great info and insight!  I appreciated your blog.  Keep up with the great articles.
Apr 01, 2008 06:41 PM
Mike Young, covering the USA - Las Vegas, NV
FHA 203k Consultant 916-758-1809

Since there is renovation or repair money involved what if you used the FHA 203k at under 4% and took it to the $565,000 you needed and include the repair money... no cash out of course.

Oct 13, 2012 12:03 PM