By John Walsh, President of Total Mortgage Services
Recently several mortgage/housing trade media outlets have approached me to see if I have any ideas on how to improve the housing market. Many proposed plans involve considerable cost or risk to the taxpayer. My idea is one that would help stimulate the housing market at relatively little cost and risk. I would like to see Fannie Mae and Freddie Mac temporarily raise the conforming loan limit to $729,750 across the country.
As I explained to both HousingWire, which wrote a story titled “Increase jumbo loan limit nationwide to spur the market” and National Mortgage News, which covered my thinking in a story titled “CT Lender: Make the GSE Loan Limit Available in All MSAs,” raising the conforming loan limit is one way to stimulate the housing market(especially the beleaguered jumbo market), while posing minimal risk and cost to taxpayers, lenders, or borrowers.
As you are aware, in a small number of designated “high cost areas” the conforming loan limit is as high as $729,750 (175% of the conforming value of $417,000). Currently in these high cost areas, loans that fall in between $417,000 and $729,750 are referred to as “high balance conforming” loans and are eligible for this program.
However, there are millions of qualified borrowers who live outside these “high cost” areas, some only a block or two away, who could potentially benefit from increased conforming loan limits. I believe a uniform $729,750 conforming limit in all regions of the country would spur home sales and allow many jumbo mortgage holders to refinance in this current low interest rate environment.
Today, underwriting standards for jumbo mortgages are very stringent due to the lack of private investment dollars in the sector. Many lenders require very high down-payments, which significantly reduce the number of eligible buyers for jumbo properties. Making GSE funding available up to $729,750 across the nation would cause more homes to be sold and would allow many borrowers to refinance their mortgages at lower rates. I would propose we use the same sensible underwriting guidelines currently used by Fannie and Freddie for high balance conforming loans. For many people the savings would be considerable, and this money saved on mortgage payments would be pumped back into the economy.
It would be great if there were private lenders that could pick up the slack in the gap between conforming and high balance conforming loans, but presently there are few private investors that are able to offer rates that are comparable to those offered by the GSEs with similar underwriting guidelines. Many borrowers cannot qualify for jumbo mortgages and are being left on the sidelines. Temporarily raising the conforming limit would prop up the jumbo markets until private investors are ready to return and the housing market and the economy in general would immediately benefit.