The new 'junior jumbo' loans, and why they won't be temporary

Good morning. Countrywide Financial is leading the cheers this morning for the new "junior jumbo" mortgage loan limits. "It's the single most effective step they could take to stabilize the housing and mortgage market," said Countrywide spokesman Rick Simon.

The details: Simon was praising the stimulus deal cut by the administration and Congress, which would include "...a significant increase in the maximum loan limits for the Federal Housing Administration and quasi-governmental secondary mortgage operations best known as Fannie Mae and Freddie Mac."

More, from LATimes.com: "The precise hike in loan limits was still being debated late Thursday. House Republicans said they had agreed to temporarily raise the limit for Fannie Mae and Freddie Mac loans to $625,500, although Democrats were proclaiming that the deal would hike limits to $729,750.  Either way, the increased limit on loans guaranteed by Fannie Mae and Freddie Mac would be temporary, expiring Dec. 31 of this year."

Why it's such a big deal, and such a boost for homeowners, in California: The move would likely mean lower interest rates on loans in the $417,000 to $729,000 range (which I'll now call "junior jumbo" loans). That would help buyers in that price range, and owners in that price range who are looking to refinance into fixed-rate loans. Maybe more important, it helps lenders like Countrywide find a willing buyer for their junior jumbos. Win, win, win for those folks.

The arguments against higher limits: They would newly expose Freddie and Fannie -- and ultimately taxpayers -- to some of the least stable housing markets in America, which are the expensive ones. As Mike P said here yesterday, "In other words, taxpayers all across the country are now on the hook for California-sized mortgages. I bet they're thrilled." Also: As Cal points our here, Fannie and Freddy's limited capital "will be soaked up by California (and other parts of the country) Jumbos, leaving a lot less for everyone else."  In other words, explain to someone in Cleveland why the government should back one big California mortgage instead of three normal-sized Ohio mortgages.

Why it won't be temporary: Because on Dec. 31, 2008, it says here, the housing market in California and other bubble markets will still be weak. The lame-duck Congress will have a choice: let the junior jumbos expire, which would hurt already weak markets, or extend the junior jumbos. Congress, lame or otherwise, rarely crosses the financial industry. The junior jumbos will survive.

Why the Bush administration rolled over on this issue: Its opposition to higher loan limits for Fannie Mae and Freddie Mac is well known. From NYTimes.com: Treasury Secretary Paulson, at a news conference, acknowledged that he was not happy about the higher limits. “I got run down by a bipartisan steamroller,” he said. “Republicans and Democrats reunited on this.”

Your thoughts? Insights? Anybody out there believe these higher limits would be temporary?  E-mail story tips to peter.viles@latimes.com.

Comments

[adrian]

What's the deal on having a lower rate, if buyers have to prove they can afford to pay the mortgage?
Still, there is a big gap between price and income and, with the banks reluctant to lend money as easily as before, I don't think it'll make a difference.
I am sorry for NAR and Countrywide, but I still hold tight on my 200K for down payment, waiting for prices to come down for another few months.

[JW]

Here, my wife and I sit in our fully paid for home. We have always been responsible people who paid their bills and have never even paid an electric bill late. We are shaking our heads in disbelief because the money that we have saved is being devalued by these idiots in Congress. Let me get this straight: Fools who bought homes that they couldn't afford are going to get another bite of the apple and the government is going to back the mortgages so when they default, the responsible taxpayers take it in the shorts. Add this to all of these idiotic, rate cuts which along with the huge number of foreclosed homes have driven away investors in good ole Uncle Sam and made our $$$$$ worth a whole lot less. I am sick and tired of these %**&@^#% politicians getting involved in the free markets. What a bunch of morons. (in case you can't tell, I'm pissed)

[Nathan]

The found a bailout in disguise that's palatable to the general public.

[greg o]

More rewarding the masses for not being responsible.

[sigh]

"In other words, taxpayers all across the country are now on the hook for California-sized mortgages. I bet they're thrilled."

EXACTLY. So here's your government bailout of all the lying cheating stealing fraudulent bastards on Wall Street, lenders, and everyone else who caused this fleecing of America. Let's just send the bill to the government! Woohoo! SIGH.... I'm moving to Canada.

[Jeremy R]

"there would be a significant one-year increase in the size of mortgages that could be backed by the government. "

One year eh. I will believe it when I see it. Its more like a permanent increase!

Housing bubble transfers into a credit bubble transfers into a government bubble.

The government better be very carefull while exposing itself by insuring much riskier loans.

Maybe I am confused, or maybe I am just making this up, but if the government gets into huge trouble they will either expand the national debt, or they will cause huge inflation. More over, the value of the dollar drops, the price of imports skyrockets, and the credit crisis deepens.

Cant we just encourage buiilders to go rental on their condo projects? Then all of the people who go under water because of a huge housing correction can have a large supply of affordable rentals to choose from.

After this whole thing blows over, the rentals can be condo converted back, we will still have an ample AFFORDABLE housing supply for our population, assuming we outlaw bad lending.

This sounds better than manipulating global credit markets, increasing exposure to falling assets, etc.

We need to think long term people. We dont want to end up like Tokyo circa 1988-2002

[Theron]

I realize this is another case of "moral hazard" but is it so bad? Don't conforming mortgages have to meet much more conservative qualification criteria? So your exploding ARM borrower with -5% equity still won't qualify.

[SurferNate]

My concern is the FHAsecure proposal becoming permanent...The GSEs liquidity will be trapped eventually. But allow the FHA program to have 97% LTV at $700K plus will become the biggest taxpayer bailout. Has anyone have an update on the tax re-allocation for the banks, hb, ib that has been proposed with this stimulus? It definitely raises the actual price tag substantially. Will the banks even lend the refund? Doubt it...since it is a solvency issue for them now....

[Cal]

Since it is buried in a stimulus bill it might pass, on its own and given full consideration, no way the Senate passes this. The vote would be 45-5.

Why it will probably stay (even though the Democrats "promised" not to try to extend it).. the new democrat President will be sworn in on January 20th and they will definitely keep it.

The OFHEO director is worried. The person in charge of worrying about the GSEs thinks its a really bad idea. Which pretty much guarantees he will be replaced by someone who thinks its a great idea and wont make waves.

[Jenna]

Maybe I don't understand what is going on, but this doesn't sound so bad. People will still walk away from their homes if they are severely upside. Their houses will have to be sold at lower rates since the easy money has dried up. People like me who have been saving and have 20% to put down get to take advantage of a better rate while still adhering to the stricter rules. Am I wrong?

[Andrewy]

I am pissed off about this increase in jumbo loan limits. I am from the bay area and have an increase like this will only fuel costs to remain high. What we need is a price correction so that more people can afford housing, insteard what this does is let people who could not afford the house they are living in to cling on linger and also to aid people who can't afford a house to think about buying again!

[Paul Hiller]

Raising the limits will have less impact than many think. Countrywide just put almost all of California in a "declining value" box. It means that all their programs just got cut back 5% loan to value. Nearly all of the borrowers in the most trouble are from 04' on , and most were highly leveraged to begin with. Underwriters are being encouraged to actually underwrite, so the few "stated" programs left are under a microscope. That only leaves the people who actually make good money and still have plenty of equity, eligible for a refi. Put the party hats away. Whatever punch is being served is very weak.

[BigD]

This is going to help our real estate market in California. The neiborhood I live in will definately be affected - mostly $700k to $1.5 million homes. It will lower interest payments for many people. Many more people will be able to qualify for beter interest rates. Come on people, this is good thing!

[brettdl]

Here's the press release that Cal is referring to:

STATEMENT OF OFHEO DIRECTOR JAMES B. LOCKHART ON CONFORMING LOAN LIMIT INCREASE

We are very disappointed in the proposal to increase the conforming loan limit as we believe it is a mistake to do so in the absence of comprehensive GSE regulatory reform. To restore confidence in the markets we must ensure that the GSEs’ regulator has all the necessary safety and soundness tools.

Yesterday Chairman Dodd talked about moving a GSE reform bill early this year. We are ready to work with him and the Senate Banking Committee. We will also be working with Fannie Mae and Freddie Mac to ensure that any increase in the conforming loan limit moves through their rigorous new product approval process quickly and has appropriate risk management policies and capital in place.

[mike]

i want a new fannie may mortgage. i'm going to use this to my benefit instead of complaining about it. i'll have my new mortgage fall on the backs of the whole country. why not.

[Michael Snyder]

Once again the devil is in the details. To allow increased limits for loans going forward and employing prudent underwriting standards might be construed as an appropriate market adjustment. Providing a government/taxpayer funded dumping ground for mortgage investor's "untraceable paper" is a bad idea and probably the net goal of this "stimulus plan". We're down to a little bread for the masses who will spend it on goods manufactured in China and the circus/Wall St.will dump their bad paper on our children.
At this posting the Dow is down triple digits as the euphoria from the Fed's emergency action wears off in less than two days. If the expected half point cut happens next week we'll see another bounce probably followed by more "correction". It seems interest rate cuts and government bail outs are the crack cocaine of the financial markets.
As for temporary? Sure; just like our presence in Iraq was temporary after "mission accomplished."

[Michael Snyder]

Talk about details! While listening to CNBC i heard a commentary on a tax "adjustment" included in the "stimulus package" before the Senate. The provision allows for losses in the last year to be applied to the gains of the last five years. Ann should do the math on that one just for Countrywide. How about WaMu or Wells Fargo? Angry yet?
Kinda makes that $300 to $600 cheque look a bit pathetic.

[CD]

Warning PETER,This is completely off subject, but I see today in the LA Times real estate section that you wrote an article on a prefabulous Marmol's desert house in Desert Hot Spring for 1.85 million. agent is Crosby Doe.
Peter ,are you aware that Desert Hot Spring is the dumping ground for all convicted felons?
Please read the article in The desert sun today. : mydesert.com re :will the State continue dumping parolees in Desert hot spring?
Desert Hot Springs has become a very very dangerous place to live anyone familiar with the Coachella Valley will testify to that. Please read the article , you may as well advertise for someone to live in Compton for 1.85 millions. That prefabulous house should be deprefabricated and moved the hell out of there. The agent Crosby had another Neutra home they wanted a fortune for next to a Cristal meth lab also in Desert Hot Springs. This is strange advertising for a very dangerous place.Don't lose your credibility over an architectural home that has been for sale now for a very long time, that no one in their right mind would buy because of the danger involve in that area.This is a very bad bad place. Check the Desert Sun and tell me if you want to move there...

[IM]

Let's face reality. When our parents bought homes 30 years ago, the ratio of house value to annual income was probaly 2:1. Today it is anywhere between 5:1 and 12:1! Housing assets have been inflated for decades. As rates rose, sub-prime, home equity and prime mortgage rates rose. Those holdling the first two categories of loans could no longer afford them. Result = default. Those defaults are critical to deter what, historically, has been superinflation in housing prices. Our economy depended on that superinflation RELATIVE to other products and services because it created the wealth effect (using home equity lines, etc.). But the foundation of the economy...the EMPLOYMENT SECTOR was not living up that superinflation. Incomes weren't rising anywhere near as fast as housing. So the equity in people's homes was supporting the economy and now the doo doo has hit the doorknob. The best thing for this economy is a SLOW decline in housing prices back to equilibrium. Raising these limits only perpetuates the problem (and I'm a potential buyer in this category). It would help maintain the price of housing when in reality, the best thing for the economy is a steady, gradual drop in the price of housing.

[LeavinLA]

To all of you who are crying about this because you want prices to crash, get over yourselves. Make more money or move somewhere else. No one owes you a house. If you can afford the mortgage, you can buy a house. You're acting as entitled as you accuse those you want to disembowel for overreaching with subprimes of being.

[Chris Pepper]

THis has not been signed into law. People are already saying this isn't going to fly. You have every right to write your congressman or senator and let them know how you feel about this. Call there office. They do listen to their constituents.

[Cal]

LeavinLA: "No one owes you a house."

Funny, that is just what many of these people who bought are getting, a house and a bailout.

[MyLessThanPrimeBeef]

Freddie Mac down 7.6% and Fannie Mae down 7% - that's the business we have chosen, Michael. It's just business.

[Cal]

http://tinyurl.com/27aq9t

"Stimulus plan may lead to higher mortgage rates "

"Increasing the eligible loans to $729,750 from $417,000 would change the characteristics of mortgage-backed securities, leading traders to exact a premium for increased interest-rate risk."

It's almost as if the OFHEO knew exactly wtf they were talking about (see earlier note from ofheo).

[IM]

LeavinLA - I haven't noticed anyone indicating they are "entitled" to a house. They just don't seem to want to stupidly overpay for one. I hope you could agree that inflation in general (and in particular when not matched with wage-push inflation) has a negative impact on the economy. You only have to reach back to Jimmy Carter's legacy to realize that.

I haven't seen anyone say they are "owed" a house. What I see are intelligent people who don't want to overpay for a house.

But then again, LeavinLA, we could all just uproot ourselves and move to the middle of the country like you.

[WC Mortgage]

This stimulus package accomplishes nothing. If you have the ability to document your income, there are plenty of lenders that can get you fixed Jumbos in the 5's. If you can't find one then fire your broker and get someone who knows what they are doing.

The fact of the matter is that most people who obtained Jumbo mortgages did so on a stated income program, and those programs are now restricted to higher FICOs, lower loan-to-values and primarily self-employed borrowers. How does this "stimulus package" help? You're right...it doesn't.

Those of you who think this means better rates for people are in for a rude awakening. Fannie/Freddie have already instituted a risk-based pricing system that increases rates and pricing for people with higher LTV's and FICOs. Does anyone here really believe that there won't be a pricing adjustment for these higher loan amount exceptions?

Moreover, the indexes that most of these ARM's are tied to have fallen so much lately that the next adjustment period for homeowners may see a number of payments actually stay the same or even go down! Too little, too late.

At least the photo-ops will make great election year commercials.

[arroyogrande]

Something to think about...the law of unintended consequences in regards to raising the conforming loan rate:

Reuters
Stimulus plan may lead to higher mortgage rates
http://tinyurl.com/2jr98z

"Increasing the eligible loans to $729,750 from $417,000 would change the characteristics of mortgage-backed securities, leading traders to exact a premium for increased interest-rate risk...

"When you start throwing a lot of jumbos into a pool you spoil the fungibility of the collateral," said Linda Lowell, a mortgage market veteran and principal of Offstreet Research LLC. "That has made the market as liquid as it is. Home owners have benefited from lower mortgage rates."

- arroyogrande

- arroyogrande

[LeavinLA]

IM: Most of the posts on this blog carry a huge sense of entitlement. "I saved and saved, but I can't buy a house! It's my RIGHT!" "Anyone with a subprime loan should die so prices will crash and I can buy the house I deserve on the beach, because I was smart enough not to get into the market!" etc. That's all entitlement thinking.

And I didn't move to the middle of the country. I moved to an area with beaches... and real estate value appreciation.

[JohnnyB]

Excerpt from a CNN-Money article today… by Les Christie

Les writes… “For instance, the interest rate difference between loans that fall within the cap limit and jumbo loans was more than 1 percent on Thursday -- 6.39 percent compared with 5.30 percent, according to Bankrate.com...”

"The 1 percent drop is a huge factor," said Yun. "In California, it could create a mini-boom."

Well, we all know, love and respect the credible Yun-meister from the trustworthy NAR. If he’s for it, it must be good for us Californians.

Another California housing “boom” sounds like just the ticket.

[yourkillingmelarry]

This is too funny, here is Calculated Risk take.

http://tinyurl.com/32rtuo

"TBA works the way it does precisely because "agency" loans are basically interchangeable: the normal variation just isn't wide enough to prevent traders from pricing deals before seeing the exact loan composition.

Certainly this problem can be solved by putting the LFKAJ* in their own pools--as with FHASecure. That might keep this plan from driving up rates for everybody, but it's not clear to me how it improves the spread on those LFKAJ-only pools. Hmmm.

*Loans Formerly Known as Jumbo"

Loans Formerly Known as jumbo, that's hilarious. All this fuss and nothing really changed, the LFKAJ's will have to have higher rates to themselves or all mortgages will have to have higher rates. Do you think somebody could have picked up the phone and asked the traders what they thought about this??

[Jason]

I have been waiting and saving money for years waiting for a correction in the market. I have an income of $100K per year and I would struggle with a California mortgage. I don't see how the average person with a 60-80k income can get a loan for $500+ and live a good life. Has anyone seen the credit card debt of the 1+ Trillion dollars. Americans don't have a concept of person finance. They want to spend print more money spend more and then has someone else pay for the damage.

[Cal]

http://tinyurl.com/2geqpx

"Fannie and Freddie loan limit growth could run into opposition in Senate"

"Sen. Richard Shelby of Alabama, the senior Republican on the Senate Banking Committee, agreed. Raising the loan limits without stronger regulation "enables thinly capitalized entities with recent accounting problems to provide a high-risk benefit to the wealthiest Americans without any real consideration of the need to do so or of the risks it presents to the taxpayer," Shelby spokesman Jonathan Graffeo said in an e-mail."

It aint over. At least some of the Senators from the non-bubble states realize the underlying issues.

[Mary C.]

All of the posters who complain about people feeling "entitled" to buy a house via falling prices -- how is that different than feeling entitled to shored-up real estate values via government-subsidized low interest rates? I was always under the impression that government-backed mortgages were to help the middle class get into home ownership. If your income is high enough to afford a mortgage on a 600-700K house, you are an upper-income family/person. If that's the case, why not just have the government back mortgages up to $1 million or 10 million? This is just such a bad idea. It exposes the government to trillions and trillions more in risk. Everyone will pay. If you make enough money to afford and expensive home, then you can and should pay the interest rates for it. The interest rates on jumbo loans are not that bad, only a point more or so than non-jumbos (and everything I've read indicates the rates and availablity have increased since the jumbo problem first cropped up). If your credit is great, you should have no problem getting and affording a jumbo mortgage under existing, non-government programs. The fact that people can't is more a reflection of the fact that loans were made with bad underwriting standards before, and aren't now. Getting the government into it may not change the situation much, because they have strict lending standards, too. But a few people that are in good financial positions and have very high incomes will get subsidized interest rates, and that's just wrong. Plus, it will slow down the price decline, which is a bad thing. They will go down no matter what; it's probably better to get it out of the way as soon as possible, then prices can eventually stabilize once supply starts to get sold off at the lower prices.

[ShameandScandal]

Picking up on the announcement from the OFHEO Director (read: Bush, Paulson), who goes on record to say the junior jumbo political 'bandaid' is a bad idea without some really serious thinking about things ---

I'm no fan of BushWorld, so don't shoot me as an ideological messenger here. But let's consider for a moment that, at some high level, real grown-ups are imagining a potentially serious infection that could creep into Fannie and Freddie in a moment of unbridled legislative passion. In the name of 'preserving the American Dream,' it would not be the first time this sort of accident has happened in the history of this country. Yes, I'm shocked too, but we must grieve and grow.

Fannie-Freddie form the spine of a complex $11 trillion (a rough estimate of current U.S. mortgages) economic-financial structure, not to mention the additional mega-trillions in hedges and derivatives linked to same. For those not facile with imagining the magnitude, it's important to pay way more attention to the t-word than the seductively small '11' word. After trillion comes quadrillion, I looked it up.

Even if legislative language is crafted that could be interpreted to mean 'small' or 'temporary' by reasonable people like you and me, experience teaches us that these terms have no meaning to finance/bank companies who hire way-smart lawyers and lobbyists, or to federal bureaucrats, who also thrive on turning legislative nano-cracks into massive canyons. They also share a teaching mission to the economics- illiterate, see next paragraph re the Congress. BTW, way-smart lawyers and lobbyists like expensive shiny suits and shiny shoes, I don't know why, maybe some kind of Ken and Barbie thing.

Let's set aside the Mazillo turd for the moment. Yes, stinky and icky, but he's not a flight risk anyway, and truly small potatoes in the overall scheme of things. Tabloid filler. The scandalous complacency of the Congress and the federal agencies, too, is a matter for another day (meanwhile, go to www.house.gov and www.senate.gov, get their phone numbers and email addresses and share your views directly. If they do answer your email, they will probably try the lame 'no one could see this coming' excuse, so be prepared for that one.)

No, the stakes are much higher in a few years. If history holds true for median residential real estate values as a multiple of median household income, prices need to decline another 25-30% in the western U.S. My imagination wanders to the coming days when world financial markets, and (what's left of) the big banks, and their traders, might start to get a whiff of this, and mingle that whiff with an idea that Fan-Fred products, containing an architecture that tries to put any kind of artificial flooring under this powerful historical trend, can't be trusted like in those good old days of that 'shining city on a hill.' Or, median household incomes don't go up by 20% across the board in a month in order to allow for the historical multiple to return (don't give the Congress any more nutty ideas). Real simple research, go to the Census Bureau on the Internet, find the numbers, and put them in a spreadsheet, presto. I imagine that the grown-ups are looking at some stuff like this, with lots of extra details and maps and charts and stuff, probably on shiny paper.

So, where am I going with this ? What I'm imagining on a chilly Friday night, is that a real good test might be coming for Mr. Market to describe a much more breathtaking impression of how far 'down' might be, which could impress even potential lenders of last resort, some of whom President Bush just visited. Maybe you saw the photos of him standing in front of a tent in a desert a couple weeks ago. Not only some bigger trembles from Mr. Market, consider the possibility of a more-than-chiropractic adjustment in a few years in the values associated with the term 'full faith and credit of the United States of America.' I am having dreams about scary roller coasters these days. Say, can you see ?

Have a great weekend, everybody, and thanks to the LA Times for keeping free speech alive during these dark days.

[Ann]

This is a 'whatever' proposal because of two abbrevations:

DTI - debt to income which means the borrower will have to conform to the Freddie, Fannie and and FHA quidelines of maximum 31% of gross income going to mortgage AND taxes AND insurance; plus not more than 41% of gross income to fixed debt (house plus credit cards plus car etc)

LTV - amount of the loan to the value. This means downpayments. Freddie and Fannie have booted the required downpayment in 'distressed' markets - and that includes CA. If the prior downpayment was 0, they now want 5% (and fat chance on getting that!). If it would have been 5%, they want 10%; 10%, they watn 15%; 15%, they want 20%........

Also Freddie and Fannie buy very very very few ARMs as compared to the number of fixed - and if if is an ARM, the borrower has to qulaify so that the maxiumum payment is not more than that 31%/41$ DTI.

So how many prospective buyers can really come up with:

(1) 10 -25% down payments

(2) meet the income to debt ratios for those size loans

Answer will probably be no more of them than there were in '03-05 which is still only about 25-26% of borrowers. (OFHEO data on the type of jumbo loans extant.)

They want to refi? Still have to meet the DTI ratios and the house will have to appraise to meet the LTV requirements (and in a falling market, that sould very easily mean bringing cash to the table and the odds of them having the cash are?)

So, it is really kind of meaningless.

[Nick]

I live in the California (Bay Area) and our total annual income is 210K. We just bought our first house last year. Its pretty small (1600sq feet) but had to pay 750K for it. We put 22% down. Ours is a jumbo loan where there interest rate is 5.75%, but with the stimulus package I should be able to refinance for less than 5% just like the "responsible" people living in the rest of the country who have conforming mortgages because housing is not expensive. And I am really happy about it. Hope no one should have a problem with that. Right?

[reena]

To Mary C.

Then why not lower the conforming loan limit to 117K from 417K to expose the government to even lower risk?

You can easily get houses for that price in many states. Why is 417K such a "magic number"?

[Fan]

It is about the bank/financial system the government is trying to save, it is not about the individual house owner, stupid!!! Who cares who buying what house in what prices. The more you buy or borrow, the better for the bank and financial institutes as long as your credit is checked and approved.

[cane]

Interesting discussion - really highlights that people will ignore facts for their own self interest. The huge increase in housing costs in most markets (or the bubble, whatever you want to call it) has clearly been demonstrated to be a function of, in order of significance, a) lax lending practices, b) fraud, and c) supply and demand. A and B are for the most part gone, since lenders have finally awakened from their stupidity. The increase in limits in SOME areas (LA, SF, NYC) will be coupled with much more intensive and restrictive analyses of borrowers’ ability to meet their obligations. However C - supply and demand - will now be the primary vehicle to determine real estate value, as is always should be. No one in the more expensive areas will be getting any kind of free ride here. Prices will continue to fall in these areas if they were artificially propped up by A or B. If they don’t (due to supply and demand now taking a front seat), then buyers in the more highly sought after metro areas will no longer have to pay a financing premium for some mortgages - this is not unfair nor the end of the world. What is unfair is to set an arbitrary number like $417k across the entire US, as if values in Cincinnati are tied in any way to values in West Hollywood. That said this is clearly a hidden bailout for many buyers who over extended and the financial institutions that allowed it to happen - they screwed up royally and are now being given a lifeline. I don't think they deserve it at all, but the downside risk of not doing so is much more scary than most people here are acknowledging. It's not just a matter of allowing real estate to free fall to a point where renters priced out of the market to now afford a home; unfortunately all this crazy lax financing is intertwined, and the fallout could spread (actually, it is already...) like a virus to the whole economy, affecting jobs from top to bottom. Be careful what you ask for, you just might get it, and it might hurt you a lot more than you think.

[jdj]

'Stimulus plan may lead to higher mortgage rates'
http://news.yahoo.com/s/nm/20080125/bs_nm/
usa_mortgages_bonds_jumbo_dc_1;_ylt=Aj0PzGJ0XzTq
LlCQ3d9e5SUG1vAI

[kcnativnla]

The median income for LA is $61k. The median house is $600k. Do the math. No matter what type of creative financing the government comes up with, the truth remains the same; housing is not affordable in LA. I don't know anybody who says they are "owed" a house, but if they got rid of everybody here who can't afford the house they're living it, California would be a very lonely place. That's sad. I'm waiting to snatch up a home...a HOME as soon as prices are realistic. However, deals like this "stimulus" package will continue to artificially inflate the market, inviting speculators and idiots, and push out responsible potential home owners like me and my wife. Just because these fools are willing to pay 70% of their income on a home, doesn't make that the smart thing to do! It's sad and unfortunate, but those people need to pay the price for their irresponsible behavior.

We've circled November, 2010 on our calendar. Either it gets better by then, or we're moving. We might as well start packing now, if the government is going to pass bailouts like this!

[Drew]

This will help us later in '08, we plan to buy in the $600-700k range w/20% down, now we can save a bit on the interest rate because the entire mortgage balance will be conforming. Woo-hoo!

[jimmythetrucker]

The "junior jumbo" raise was predictable based on past behavior of this administration, which has always put politics ahead of patriotism. They're willing to do anything, they'll gladly wreck the country if what they do keeps the roof from falling on George W. Bush. If Bush was a man, he would take responsibility for the mess he has made. But Bush is not a man, so he will instead drop the whole load of manure on the next administration.

[PR]

Putting aside whether the increase will have more unintended effects than intended, why shouldn't a proportionate share of California home owners have the benefit of a program funded by all taxpayers? Enough tax dollars are taken out of this state and distributed to less populous states who nevertheless get their two Senators, or to ethanol farmers in early-voting Iowa. Why should 3 Ohio homeowners benefit at the expense of one in CA? We are penalized enough by high costs of living, limits on deductions through the phase-out, the AMT etc etc. Why on earth should we feel one iota of guilt about this?

[Michael Snyder]

yourkillinme larry,
Why do I find such striking similarities between this "stimulus plan" and the wardrobe belonging to "the artist formerly known as prince"?
Ann
I'm actually curious about the potential ramifications of the five year loss amortization allowed in arrears by this bailout. It seems like we, the taxpayers are about to write huge tax refund cheques to these corporations to cover their losses on their subprime CDOs.

[Ken]

I don't see how this should bother anyone. I have a 500k mortgage on a 700k house because real estate prices went up dramatically and I need to be in a town with a good school system for my growing family. I make close to 200k and own my own business. Why should I pay a higher rate than a guy with a 400k mortgage. Who does this hurt. It seems to me it only hurts those who are "praying" for homes to become more "realistically" priced. What is realistic?

[Cal]

PR: "why shouldn't a proportionate share of California home owners have the benefit of a program funded by all taxpayers?"

14.35% of conforming loans purchased by the GSEs in the first 6 months of 2007 were made in California (proof in the URL at the end of the post).

And with a Ca population of 36 million and a US of 299 million, meaning we are 12% of the US population it seems like we already get our fair share.

The issue is both the purpose of the GSEs and the risk involved to them. I dont think it would do anything other than soak up mortgage money from the affordable parts of both the US and California in particular. This will cause rates to rise and sales to slow. It is for this reason that I am for the GSEs getting involved (my personal selfishness). But the systemic risk is very high, it is akin of saying we could make more energy with a nuclear power plant if we ran the plant in a slightly unsafe manner. Yes you can do it and the risk is manageable but a small risk of it all blowing up should be more than we are willing to take.

The GSE involvement in Jumbo would make a small non-zero difference in California but it won't be nearly the panacea that realtors are hoping for. For any of the high loan to value loans you have PMI companies on the hook for the difference over 80% and they are becoming much more risk adverse. Which means to joe sixpack, higher insurance premiums if they even qualify at all.

http://tinyurl.com/ynolxe

[Laker]

Posted by: Ken "homes to become more "realistically" priced. What is realistic?"
Ken, Realistic is that people could afford their houses long ru, aka for more than 3 years...
People that can get 30 year fixed and the mortgage will be less than 50% of what they take home income. Since median household income in LA is about 60K, we can assume that not all are potential buyers so say income of 100K homes is potential median. Make it times 3 to get $300,000 as the median house in LA. Today it is in the $480,000 so you can see that we have some time/distance to go...

[curious1]

Correct me if I'm wrong, but didn't falling interest rates enable people to afford "more house for their money." Isn't that what people were encouraged to do by RE professionals: buy a higher priced house because interest rates were low? And isn't that what--in part--caused housing prices to increase so dramatically? So, wouldn't the same hold true for the jumbo loans? If the new conforming limits are imposes, people that bought these jumbo houses will not only be able to refinance them for a new lower interest rates, they'll also be able to sell them for a higher price because the interest rate for their potential buyer will be factored into the price? Won't this lead to more increases in prices in the future for already expensive homes?

[Sportskid1]

I completely agree with this increase. I have worked my butt off to buy my first house in a good neighborhood in LA and this puts me in the jumbo loan catagory. I put down a good down payment, have excelent credit, and can fully afford my house. Why should I have to pay an extra 1.25% in interest (currently) just cause my house is more expensive. Am I at a higher risk than some guy in Texas with a 200K house just barly making it month to month. This limit is a joke. What the lenders need to do is make the destinction between the high risk and the low risk loans. If someone can't make payments don't give them the loan. This is the reason that the housing markek is where it is at. 3 years ago a McDonalds employee could buy a 300K house without any proof of income. We need tighter lending practices to fix the hole we are in.

[Kali-13]

Oxy-Moron a higher F.M. limit x almost nobody qualifies.

...seems the doggy can't reach da bacon!

Is anybody actually gonna buy a house, knowing we are in the midst of a downward market... brave fools.
NO NIJA (LIE) LOAN = PRICE CRASH .. ITS 2 EASY!
DON'T THINK SO? THEN BUY ... BY BY!

[Jason]

This is the bottom of the California housing market. If you ever want to buy, this is the time. I seriously doubt prices will come down any further even though I wish they would.

There is a simple reason why housing prices wont come down more. Your local governments would falter and the entire community will be devastated due to lowered property taxes. This is NOT the way to preserve our communities and the reason why you won't see prices lower than they already are.

Government intervention is the right thing to do. They are stabilizing home prices inline with inflation. If you can't see that or are hoping to get a home under todays asking price, good luck, it isn't going to happen.

This Spring/Summer will be the last opportunity before rates come down again. It will be a nationwide phenomenon that will actually bounce the housing market upwards to form the bottom for the next decade. I wish I had more $$$ but that's the way I see it and have been for the past 20 years.

[Sal Antsipenka]

In my opinion housing market is not at its very bottom at all. It will go down more and then stay there for quite a while before moving up just a notch. The cost of real estate compared to income is very high. Houses are just not worth what people are asking for or hoping to get.

[jumbo home loans]

it's still going to go down

[Mar]

>>More rewarding the masses for not being responsible.

Funny how Americans create such an uproar when the govt uses tax money to bail out fellow americans. Sure there was a lot irresponsbility from the masses and also the banks and investors.

The irony is that most Americans turns the other way when the govt is subsidizing rogue foreign countries like Israel. And the billions spent in Iraq to fill the pockets of a few corporations through no-bid contracts. And the billions spent in defense, while leaving our borders wide open. And the bail out of the already rich in the Bears and Sterns deal. Because of this the dollar is plunging. But then again I will be called un-patriotic and un-American for saying the truth.