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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: nextrade! who wrote (25869)	12/11/2004 10:09:53 PM
From: nextrade!	Respond to of 306849

Mortgage lending limits to rise in 2005 Posted on Sat, Dec. 11, 2004 charlotte.com So-called `jumbo loans' will be available to buyers at best rates LEW SICHELMAN Special to the Observer WASHINGTON - Home buyers will be able to get the best mortgage rates on larger loans next year, making higher-priced homes somewhat more affordable. Effective Jan. 1, the so-called "conforming loan limit" will increase to $359,650. The ceilings on government-backed FHA and VA loans also will rise in 2005. But borrowers need not wait until the new year to take advantage of the increases. Many lenders are accepting applications at the higher limits for loans that won't close until after the first, and some may even be willing to lower their rates for borrowers already in the approval process. Bank of America will do both, Senior Vice President Dan Frahm said. "While the new limit is not effective industry-wide until Jan. 1, by accepting the limit now, many of our customers have the opportunity to save money," said Frahm. The conforming loan limit is one of the most closely watched in the mortgage and financial markets. Currently $333,700, the limit is the ceiling on loans that can be purchased by Fannie Mae and Freddie Mac, the two giant government-chartered financial institutions that support the mortgage market. The two buy mortgages made by local lenders, packaging them into securities and selling them to investors worldwide. Lenders typically charge anywhere from 0.25 to 0.5 percentage points less for loans that are sold to Fannie Mae and Freddie Mac than they do for so-called "jumbo loans" that are above the ceiling. They can charge less because the investors who ultimately purchase the loans require a somewhat lower yield, in the belief that the mortgage-backed securities created by Fannie and Freddie are backed by the full faith and credit of the U.S. government. American home buyers benefit in the form of lower loan costs. According to Freddie Mac, the total mortgage interest savings for a borrower with a 30-year fixed-rate mortgage at the new conforming loan limit will be as much as $24,800 over the life of the loan. The higher limit isn't likely to create many new buyers because most who can afford houses in that price range would probably have proceeded whether their loans are any less expensive or not, mortgage specialists agree. Still, Freddie Mac estimates that 340,000 borrowers will benefit from lower cost financing next year. Not included in that number are thousands more households who use government financing to buy a new home or refinance their current one. Under a bill sent to the White House earlier this month, the Veterans Administration loan guarantee will be pegged to 25 percent of the conforming loan ceiling, or $89,912.50 in 2005. So if the president signs the nonpartisan legislation, as he is expected, eligible service personnel will be able to purchase homes costing $359,650 without a down payment. Veterans could still purchase higher-priced houses. But because the VA "guaranty" is accepted by most lenders as a substitute for a 25 percent down payment, buyers would have to put up $1 of their own money for every $4 they want to borrow above the conforming loan limit. The ceiling on loans insured by the Federal Housing Administration also will rise next year, to as much as $312,896 (87 percent of the Freddie Mac limit) in about three dozen high cost areas. The FHA "floor" in 2005, or the maximum loan amount in most other places, will be $172,632 (48 percent). But in about 650 jurisdictions, including the Charlotte area, the maximum will be somewhere in between. The current FHA limit is $168,402. However, because the Department of Housing and Urban Development calculates the limit for more than 3,000 individual jurisdictions, the exact figure for next year won't be announced until late December at the earliest. FHA financing is considered a last resort for borrowers who don't measure up to Fannie and Freddie's stricter underwriting guidelines. Mortgages insured by the FHA are a little more expensive than conventional loans backed by private insurers. But the typical FHA borrower doesn't earn enough or carries too much debt to qualify for a loan that meets Fannie and Freddie's requirements. The only other choice is the subprime market, where lenders charge rates that are often several percentage points higher than even FHA rates. Fannie Mae, Freddie Mac, the VA and the FHA do not make loans directly to consumers. Fannie and Freddie are government-sponsored enterprises that guarantee the timely principal and interest to investors. The FHA insures loans made by private lenders, and the VA guarantees to repay lenders should borrowers default on their loans.