The real estate and mortgage home loan markets have now faced the new economic realities that the rebound may be longer in the making. Since the mortgage loan market has been in a temporary economic trough, the government has tried to help many people looking for new home loans and mortgage refinancing by making it easier to access jumbo loans.
As part of the Economic Stimulus Act, Congress has attempted to meet the demands of the public by temporarily raising the jumbo loan limit for mortgages that Fannie Mae and Freddie Mac can buy. Fannie Mae and Freddie Mac are government-sponsored entities (GSE) that had been previously only allowed to purchase conforming loans of up to $417,000 and then resell the mortgages on the secondary home loan market.
Congressional action raises the old conforming loan limit to $729,750. The new limit will allow home buyers in pricey markets to access loans at lower conforming loan interest rates. The temporary increase in conforming loan limits will expire Dec. 31, 2008, unless Congress renews the legislation.
However, Congress may renew the legislation before its expiration at the end of the year. Certainly, the current credit crunch has provided impetus to lowering the loan limit as to make the jumbo loans more readily available. Earlier, the majority of the non-conforming loan market had receded due to inaccessibility of credit.
But the increased limits hope to alleviate the accessibility to jumbo loans, between $417,000 and $729,750. This means that new mortgage loan borrowers and homeowners looking to do a mortgage refinance are eligible for lower interest rates of conforming loans.
The immediate effects of the legislation have been slow to materialize; maybe more time is needed to evaluate the effects of the legislation. The secondary market mortgage investors consider these new conforming jumbo home loans riskier than the original conforming loans. Herein, it will take investors an adjustment period to accept the prices Fannie Mae and Freddie Mac are offering.
The unmerited reluctance on the behalf of the mortgage investors is confusing as home buyers who use jumbo mortgages are better credit risks and place more on down payments. Actually, Fannie and Freddie package conforming jumbo loans to investors differently than sub-$417,000 conforming loans. The jumbos have been excluded from the "to-be-announced"(TBA) eligible transactions where purchase price is established at some future date.
Due to the exclusion of conforming jumbos from the TBA market, no one knows how to price them. But this hasn’t precluded Fannie Mae and Freddie Mac from offering these securities for sale on the secondary market. They are confident that the conforming jumbo loans will provide access to new home loan and mortgage refinancing options to people.