Friday, February 22, 2008

Part II: $729,750 Conforming Loan Limit

It's unclear whether the increase in the conforming loan limit in high cost areas will be the anticipated panacea for the beleaguered housing market. The securities industry's biggest trade group recommended that the new "maxi" conforming loans (in the $417,000 to +/-$729,750 range) be segregated on the secondary market from the under-$417,000 loans. Because of their greater perceived risk, these "maxi" conforming loans will likely have higher interest rates than current conforming loans, muting their benefit to buyers and those refinancing. On a positive note, those who qualify under their more stringent underwriting guidelines will enjoy more lenient terms (e.g., 5% downpayment) that are intended aid first-time buyers. Expect resolution soon: the Department of Housing and Development (HUD) has until March 14 to revise the loan limits.