Fannie Mae and Freddie Mac are once again set to begin buying "super-conforming" mortgage loans of up to $729,750, which should bring rates down for borrowers with good credit seeking loans previously classified as jumbo.
Currently, loans greater than the $417,000 conforming limit in "normal" housing markets — or the super-conforming limit of up to $625,500 in high-cost markets — are considered jumbo loans.
Jumbo loans carry higher rates than conforming loans because they aren’t eligible for purchase or guarantee by Fannie Mae and Freddie Mac. Rates on jumbo loans are running at least 1 percent to 1.5 percent higher than conforming loans of less than $417,000.
In between conforming and jumbo loans are so-called super-conforming loans that exceed the $417,000 conforming loan limit, but are still eligible for purchase or guarantee by Fannie and Freddie.
Super-conforming loans carry slightly higher interest rates than conforming loans — about 25 to 30 basis points — but are less costly than jumbo loans that Fannie and Freddie can’t buy or guarantee. A basis point is one hundredth of a percent.
On Jan. 1, the upper limit for super-conforming loans was rolled back from $729,750 to $625,500. But the economic stimulus bill signed into law Feb. 17 restored the higher limit for single-family homes in high-cost markets that was in place for much of 2008.
The following week, the Federal Housing Finance Agency published lookup tables for the new Fannie and Freddie limits in high-cost markets — 250 counties nationwide.
But Fannie Mae did not issue its eligibility requirements for the new limits until March 30. Freddie Mac published its guidelines on April 16. Both companies will begin buying super conforming loans of up to $729,750 from lenders on May 4.
Wells Fargo will begin making super-conforming loans of up to $729,750 in high-cost markets on Monday, and Bank of America will start in mid-May, the San Francisco Chronicle reported.
Implementation of the new policy should mean lower rates for some borrowers seeking loans that were previously classified as jumbo, but which now qualify for purchase by Fannie and Freddie as super-conforming loans. …CONTINUED
Borrowers will generally need FICO scores of at least 700 to obtain fixed-rate super-conforming mortgages, and provide at least a 10 percent down payment. Freddie Mac will require down payments of at least 20 percent for loans above $625,500.
Both Fannie and Freddie are requiring appraisal reviews in cases where borrowers are putting down less than 20 percent on loans larger than $625,000, or less than 25 percent down on loans where the property is valued at more than $1 million (super-conforming loans of up to $1.4 million are available for multi-unit properites).
The secondary market for loans not backed by Fannie and Freddie all but dried up in September 2007. Lenders have been charging more for jumbo loans ever since, because they must hold them on their books.
To address the problem, Congress last year temporarily raised the $417,000 conforming loan limit, but only in high-cost housing areas. The new rules allowed Fannie and Freddie to buy or guarantee loans of up to 125 percent of the median home price in high-cost areas, with an upper limit of $729,750.
There were hopes that the secondary market for jumbo loans would be restored by now. On Jan. 1, a sunset provision in last year’s stimulus bill brought the super-conforming loan limit back down to 115 percent of median home price in high-cost markets, with a cap of $625,500.
But the secondary market for jumbo loans hasn’t come back. So this year’s stimulus bill, H.R. 1, the American Recovery and Reinvestment Act, restored the super-conforming loan limits in place for high-cost housing markets during much of 2008.
The bill also restored the Federal Housing Administration’s ability to guarantee loans of up to 125 percent of the median home price in high-cost markets, up to a maximum of $729,750 for one-unit properties, $934,200 for two-unit properties, $1,129,250 for three-unit properties, and $1,403,400 for four-unit properties.
The floor limit for FHA loans in normal markets remains $271,050 for one-unit properties, $347,000 for two-unit properties, $419,400 for three-unit properties, and $521,250 for four-unit properties.
There are 73 counties at the $729,750 FHA ceiling, and 666 counties where loan limits are between the $271,050 floor and the $729,750 ceiling for one-unit properties.
A Department of Housing and Urban Development Web search page provides current FHA mortgage limits by state, county or metropolitan statistical area.
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