Will Loan Limits Rise?

Congressional leaders from both parties have been lobbying President-elect Obama to increase the limits of conforming loans – mortgages eligible to be purchased by Government Sponsored Enterprises (GSEs), like Fannie Mae and Freddie Mac – in high cost areas from $625,500 to $729,750 as part of an economic stimulus package.  Qualified borrowers with conforming loans receive the best interest rates, because many in the financial industry believe conforming loans carry less risk.

Last year, as part of the federal government’s economic stimulus package, the conforming loan limit was temporarily increased to $729,750 in high-cost areas.  Beginning Jan. 1, 2009, the conforming loan limit was lowered to its original level of $625,500 for high-cost areas.

In California, the new conforming loan limits for metropolitan areas range from $474,950 in the Sacramento-Arden-Arcade-Roseville metropolitan area, covering El Dorado, Placer, Sacramento, and Yolo counties to $625,500 in the Los Angeles-Long Beach-Santa Ana metropolitan area.

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Paying Down Mortgage Faster Can Make Sense – Sometimes

Homeowners who find themselves with extra cash may be considering paying down their mortgage.  While this can help some people in certain situations, like seniors close to retirement age or those with adjustable-rate mortgages, it may not be the best choice for all homeowners.  Paying down the mortgage more quickly can save homeowners a significant amount in interest in the long run.  However, some financial experts advise clients, especially those with fixed-rate loans at favorable interest rates, to use extra money to pay down high-interest debt and build up an emergency fund.

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Mortgage Rate Relief Might Not Last Long

The Federal Reserve’s announcement that it’s purchasing up to $500 billion of securities backed by Fannie Mae, Freddie Mac, and Ginnie Mae, has contributed to a reduction in mortgage rates to record lows.  However, some mortgage experts warn that the low rates may not last long and could actually rise as early as this summer.

According to Celia Chen, senior director of housing economics at Moody’s Economy.com, in the second half of this year, the Federal Reserve’s program will have run its course and other issues will move to the forefront, which could push mortgage rates higher.

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Lenders Backlogged By Refinancing Rush

Lower mortgage rates have led to a flurry of homeowners seeking to refinance, but limited staff at many banks has resulted in processing and approval delays.  Due to the large number of applications to refinance, Wells Fargo no longer is allowing its loan offers to lock in rates for less than 90 days.  The 90-day lock is designed to allow enough time to close the loans.

The record-low rates that have led many homeowners to refinance are typically for 30-year, fixed-rate mortgages that meet the purchase requirements of Fannie Mae and Freddie Mac.  Because so many factors determine the interest rate a borrower is actually offered, some banks may not post rates on their Web sites.

It is important to note that a lower rate accompanied by higher points and/or fees may not be the best option.  Many times, a slightly higher rate with no points and/or fees is the better choice.

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U.S. Banks Offer Mortgages Below 5% After Fed Action

After the government started purchasing mortgage-backed securities, interest rates at some of the nation’s top banks started falling below 5 percent.  On Jan. 8, JPMorgan Chase & Co. was offering 30-year mortgages as low as 4.75 percent on its Web site; Wells Fargo & Co. was advertising rates of 4.875 percent; and Bank of America Corp. at 5 percent.  All posted offers were for borrowers with excellent credit – FICO scores of 720 and higher – and with a 20 percent down payment.

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