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2010 Conforming Loan Ceiling for jumbo Loans to Stay Fixed
The Federal Government has announced that it will not lower the limit on conforming loans for 2010 in high priced markets, as it was previously thought they would do. Conforming loans are defined as loans which meet the criteria to be eligible for purchase by Fannie Mae and Freddie Mac. Residential loans that don’t conform to these standards because of size are called jumbo loans. Conforming loans are less risky to lenders than jumbo loans. Currently in high-priced areas, conforming loans are limited to $729,500. That is the limit for a one unit dwelling. A four unit dwelling is eligible for a limit of $1,403,400. If the limits had been lowered, new conforming loans for one unit dwellings, the most important indicator, would have needed to be under $625,500 to be eligible for purchase by Fannie Mae and Freddie Mac. This could have held values flat or even pushed them down in high cost areas.
At the height of the housing market, new jumbo loans had totaled $500 billion dollars per year. Last year, that figure was only a $100 billion, according to Inside MBS & ABS. Investor and lender appetite for jumbo loans has clearly diminished, along with borrower willingness to pay the higher interest rates and fees associated with such loans.
Not everyone can take advantage of the high end conforming loan limit. The area must be designated a high cost area. Most of the New York metropolitan area is designated high cost. Kentucky, for example, doesn’t have any areas that are eligible for the highest conforming loan limits.
Keeping the limit higher allows borrowers with mortgages between $625,500 and $729,500 to generally obtain a lower rate, as less risk to lenders means lower interest rates to consumers. It makes a big difference to home buyers. A borrower might get a conforming loan rate right now under five percent interest rate, but a jumbo loan might cost as much as a half percent or more than a conforming loan. On a $650,000 mortgage, that’s a difference of $3,250 per year or more. This savings in turn stimulates the residential housing market in these areas as borrowers are able to afford more property for their dollar.
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