Fannie, Freddie And The Fed

Here's some good news for the housing market! During the last few weeks the US Federal Reserve Bank reduced its short term lending rate a total of 1 ¼ points. Additionally, the House of Representatives has approved a measure to increase the limit for conforming loans from the current $417,000 to $730,000, depending on the median home price in each metropolitan area. According to Mark Klein, President of Pacific Coast Lending in Agoura Hills, experts expect the new cap for the Los Angeles area to be approximately $625,000. There is one caveat, however: It is still not certain that the Senate will follow suit and approve the increase.

This is excellent news because more loans with lower rates will be available to more people, including those facing foreclosure and/or needing to refinance. Buyers for homes requiring financing for more than $417,000 will also have access to attractive government-insured loans without having to take out a second trust deed at a higher rate.

What is the difference between conforming and jumbo loans? Conforming loans have been capped at $417,000 and have lower interest rates than those for loans over the cap- called "jumbo loans." Conforming loans meeting certain criteria (for example, no sub prime mortgages) and are purchased by Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Mortgage Corporation), two privately owned corporations created by Congress and supported by the Federal Government. Both have access to a US Treasury line of credit and are exempt from state and local taxes and SEC oversight.

Because of high prices in our area, buyers have had to purchase homes with either one jumbo loan or two separate loans. For example, to purchase a $657,000 home with approximately 20% down ($140,000) and a jumbo loan for the balance of $517,000 at 6.5%, the monthly payments are $3,268. For buyers with a conforming first loan $417,000 at 5.5% plus a more expensive $100,000 second at 7.5%, the payments are $3,067. Under the new plan, these buyers (or homeowners wanting to refinance their homes) will be able to combine the first and second loans into one conforming loan of $517,000 at 5.5% with payments of $2,935 per month. This will yield yearly savings of $3,960 in the first case and $1,584 in the second.

One of the reasons potential buyers have not been moving forward with purchases in the Conejo Valley is that the current conforming loan cap of $417,000 is too low for our market. Due to the credit crisis, the supply of jumbo loans is limited making them very expensive or difficult to obtain. If Congress' new mortgage plan passes, it will invigorate both the resale and new sales markets, as well as the mortgage refinancing sector. An increase in the confirming loan rate limit will also be beneficial to Conejo Valley home sellers because the ability to obtain a conforming loan for $625,000 or more will increase the number of buyers for their homes. More loans with lower rates will also be available to more people with good credit wanting to refinance variable rate loans to lower interest fixed rate loans.

Susan Stone, has been an Agoura Hills resident since 1982. She has written articles for a number of publications, served on a Real Estate Advisory Committee for The Daily News and has taught homebuyer classes for Bank of America. As a broker associate with White House Properties, Stone provides real estate and relocation services to and from the San Fernando and Conejo valleys. She is a graduate of Pomona College, Claremont, CA and earned a Professional Designation is Marketing and Merchandising from U.C.L.A. Stone is fluent in English, Spanish, French and Portuguese and partners with other agents/brokers for a number of others. She may be reached at: 818-865-0944 or at www.susanstone.com