A summary of the new “jumbo-conforming” guidelines (and a link to Fannie Mae’s updated sales guide) by way of a plugged-in “ex SF-er”:
– 30 yr fixed, 15 yr fixed, 5 year ARM, and 5 year IO ARM only
– 1st lien mortgages ONLY; no cash out refinances
– Can refinance a first loan, but cannot refinance a first and second into the new loan; if there is a second loan it must re-subordinate
– Maximum Loan to Value ratio (LTV) is 90% on fixed mortgage
– Maximum LTV is 80% on an adjustable
– Maximum LTV is 60% on an investment property
– Private mortgage insurance must be bought for all loans with LTV >80%
– Max Debt to Income ratio (DTI) of 45%
– FULL documentation of everything required
UPDATE: A couple of points that we’ll add as well:
– For loans originated between 3/1/2008 and 12/31/2008
– Fixed-rate paper available as soon as April 1, 2008
– Adjustable-rate paper available as soon as May 1, 2008
– Not available for Cooperative or multi-unit properties
– Fixed-rate loans will be subject to a .25% price adjustment (LLPA)
– Adjustable-rate loans will be subject to a .75% price adjustment (LLPA)
∙ Temporary Increase to Conventional Loan Limits: Selling Guide (pdf) [efanniemae.com]
Two other things that immediately jump out regarding these new guidelines:
First, maximum allowable LTVs and CLTVs are adjusted downwards for “distressed” areas – which is very shortly going to be just about 100% of the country (almost certainly even San Francisco County as well, unless they try to start splitting the county into Districts!!).
Second, but more interestingly, is the provision that seconds will need to agree to subordinate in order for the refi to go through. Since we are dealing with relatively credit-worthy borrowers here (min FICO 700 for greater than 80% LTV AND less than 45% DTI), any even semi-rational bank holding a second lien should be able to extract some cash from the borrower in exchange for the consent to resubordination. The only perhaps saving grace here for potential borrowers is that most of the staff and management at banks are complete morons who can be counted on to act against the economic interests of their institutions, so there is still hope! (That last comment is in partial response to some of the ideas that floated around on the ORH that BofA is rational and smart – PLEASE! Just have an in-depth conversation on finance or economics with a commercial banker, but first make sure to leave 30 or so IQ points at the door if you do not want your head to explode from pure frustration….)
Debt to income is a more complicated calculation that includes interest rate, the term of the loan, property taxes and potentially HOA dues. To say a family making 200k/year can only get a 750k loan is misleading. By my calculations, if someone wanted to buy a house (so no HOA) in SF (with 1.135% property tax rate) and was planning on getting a 30 year loan, then a 750k loan would be 45% DTI at an interest rate just north of 10% (which is much higher than current levels).
[Editor’s Note: Good point and we’ve redacted that part of ex SF-er’s summary.]
Does anyone know how DTI is calculated? For example if I made $100k a year….what size loan could I obtain at 45% DTI? Thanks!
Note that on the subordination issue on second mortgages, National City has announced that it has a blanket policy against subordination, regardless of LTV or underwriting risk (i.e., borrower credit history/income). So if you have a National City HELOC or home equity loan, you’re going to have to pay that off in cash, since they won’t subordinate and under these guidelines you can’t increase the first mortgage to pay off National City. Bad business decision, National City.
hotep:
Still don’t get what you mean “30 year loan, then a 750k loan would be 45% DTI at an interest rate just north of 10%”
DTI is a requirement for total max. debt shouldn’t > 45% of you income, how it assosiate to the interest rate ??
Really want to hear how ? Thanks
[Editor’s Note: “Debt” isn’t the size of the loan but the amount of the payments.]
Here is an interesting detail in the appraisal requirement for condos: “Condominium requirements: two comparables must be from projects outside of the subject project.” Good luck getting one of these loans on any of the new projects coming on line in SF. Never going to meet the LTV and CLTV thresholds with those appraisal requirements, unless you put about 40% down.
So will properies at ORH etc appraise. Two appraisals outside the complex might be rough
45% DTI?
Wow. so you pay 45% of your income to service your house, 36% for Fed&State&FICA taxes (minimum if you have the income to even think about buying here)….so you have 19% of your income left for, say, retirement savings, food, transportation, insurance etc? Hmm.
And since your tax rate is probably more like 40%, you’re really talking a cool 15% “disposable” income to spend on luxuries like food&transportation.
15% of your $200,000 income=$30,000 spending money. Woohoo! where to sign up for debt slavery?
Why does anybody want to buy around here? Never mind live here…
Existing second must subordinate? Not gonna happen. The seconds want out. To resubordinate, you’ll probably have to pay at least half of it off. And that will kill most homeowners chances of having the downpayment requirement met.
The DTI ARE aggressive: Borrowing 729K at 6.8% (which is enough of a cushion to include PMI), adding 750 per month for a car payment, credit cards and 300 in HOA (probably lower than average), plus 1100 per month for taxes and insurance (may be a little high) gives the buyer the max loan with just 176K in income. About 12% of the households in the bay area hit that number, so this will help if all you need is 729K and you don’t mind paying PMI. Of those, I suspect about half will have the down payment required.
So we go from an environment in which anyone who wants a loan can get one for nearly any amount, to one in which 6% of the people can get a very modest loan. I think this doesn’t reflate a bubble, nor is it going to incite any bidding wars that weren’t going to happen anyway, but it probably slows the deflation down a little bit, which is pretty much what it was designed to do.
FINALLY, a return to sanity in mortgage lending practices!!
FINALLY
FINALLY
FINALLY
Everything else will now soon fall into place.
oops.
sorry hotep… thanks for catching the math error. I did my math too early in the morning.
That said… the point is still valid.
The DTI ratio will be a killer for a lot of deals.
===========
6.8% (which is enough of a cushion to include PMI)
where did you get this number? using the current conforming mortgage rates? (6.12% average as per Bankrate today)
currently, jumbos are around 7%
fannie is rolling these out, but they will have a 0.25% LLPA and also a 0.25% adverse market charge (not sure if SF is adverse market or not). That’s 0.5% right there. Then add in PMI…
this is the last key step… what are the rates going to be?
The requirement for some of the sale comps in a an appraisal to be outside of a new development that has not sold out has been around for a long time and is nothing new.
And as far as that being a bad decision for National City or anyone who doesn’t want to resubordinate their seconds – bad for the borrower, wise for the bank. Really, over-leverage is the main culprit in this mess – if the borrower doesn’t have much skin in the game, the banks are finding they can get really screwed really fast (duh – who couldn’t see that coming).
Yes, I may have been too conservative on the rates, but I spelled everything out so that people could use their own assumptions.
I blew it on the rates. I didn’t realize that rates had risen between a quarter and a half of one percent in one week! You are right ex SF-er, if I use 0.5% for PMI, we’re at 7.1 percent and rising.
If I use 7.2% (rates really could go either way, but if BB drops short term rates, I don’t see how mortgage rates will fall – they are rising in expectation of his drop) that bumps the documented qualifying income to 181K. So let’s say you were probably a little aggressive on 200K, and call it at least 180K, so you were within 10% on your initial call of what the effect would be.
So basically, increasing the loan limits has A)dropped the rates to where they were about a week ago and B)increased the qualification standards dramatically, everywhere (all other lenders will probably fall in line). So the real estate market just got worse.
So to be honest with you, it didn’t really help anyone. Most people in trouble won’t have the downpayment to bail out and rates are flying up so high that those who have the down are going to find the rent vs buy harder, especially in light of what is now very clearly falling values.
Homes should sell for LESS than their rental value to make up for the expected drop in price. And the number of rentals on craigslist has doubled in the last 6 months: I don’t see rents rising to help that equation out.
thanks tip… I was confused.
My $200k statement this am was just bad math… “carry the 1” and all that… after that bad math I can hardly blast other people’s assumptions! 🙂
the 64 Trillion dollar question really is: what will the baseline Jumbo Conforming rate be?
I would be unsurprised if it were 6.25%, and equally unsurprised if it were 8.5%
it depends on
-how far investor fear goes.
-government/Fed intervention.
“it depends on
-how far investor fear goes.
-government/Fed intervention.”
LOL ex SF-er! We haven’t even begun to see real investor fear yet. I’ve traded through 5 or 6 “10-sigma” or “thousand-year flood” events (various countries/markets of course, with only LTCM in 1998 happening in the US). Funny how so many have happened over the course of just 20 years, isn’t it? Anyway, we’re not even close to how bad things can (and almost certainly will) get.
The Fed IMO is still in control of the situation, but we are getting close to the waterfall that many of us have been anticipating for a while. At some point, as I mentioned to you in another thread, the USG will come in and nationalize the entire mortgage market. Fannie and Freddie will almost certainly fail. At that point – again, if I am right – everyone owning a house will be frozen in their “endowment” position. Prices will NOT be what people are thinking they will be. Anyone priced government cheese lately?
Bernanke and his crew are no smarter (but no dumber, either) than the Fed in the 1930s. It’s too bad we don’t have a Mellon today (“liquidate everything”, clean out the “rot”), but of course now (just as then) the politicians would ignore the sensible course.
Hey Satchel, so in your “Fannie & Freddia fail and mortgage lending is nationalized scenario,” what happens to the price of 2/2 condos in Russian Hill?
Satchel,
When you say that “Prices will NOT be what people are thinking they will be”, are you expecting prices to settle out higher or lower than what people are expecting. Any predictions on where on the Case-Shiller Index the number will fall?
Jimmy (Bitter Renter),
If I was smart enough to give you a precise percentage decline, I would! They will go DOWN, of course, because their current prices were set in a false equilibrium based on the final hurrah of a nonstop 25 year credit inflation. WHo knows how much?
One thing i will say in defense of 2/2s in Russian Hill. I would MUCH rather have a 2/2 there than a 1/1 there. And I would MUCH rather have a 1/1 in Russian Hill than a 1/1 in SOMA…. You get the idea I’m sure. Price declines will not be uniform, that’s for sure!
We know it’s all related, but let’s try to stick a little closer to the immediate topic of the new “jumbo-conforming” loan guidelines.
Re the immediate subject of this thread, the point is that these new guidelines are not going to have any material impact on the accelerating decline of housing prices in SF (or elsewhere) — other than, perhaps, to further accelerate them as more cards fall.
Trip,
It is not about how you want the sellers to be screwed. It is about how buyers can get a little break.
I have said many times, although the price has come down, it costs the buyer MORE to buy than 1 year or even six months ago because of the higher rate. So, most SS reader’s idea to “jump in when the market is down” end up “don’t want to jump in no matter what”.
And I am pretty sure most of the bears on SS are closet buyers….we want to wait for an oppotunity to get into the market.
Forget about the sellers for a moment.
Instead, if you want to buy, this will indeed help. Considering the new limit is only for this year, you will have to think hard on whether to explore the options.
I have said many times that I believe the bottom is the end of 2009. However, I will have to say if your income is OK (200K range), have a good down payment, and want to buy (because of family or kids), then maybe 2008 is better due to the lower conforming loan limits.
you know I think the reason agency paper started to fail was precisely because of a perception that the rules were changing (by Congress), thus the market players repriced risk. Guess what, they priced it higher. Shows you the law of unitended consequences. The Fed needs to start trading agency paper for treasuries which should bring all mortage rates down. At least temporarily.
Dear John,
Why call a bottom for RE in 2009?
2009 is the year when the Option-ARM recasts really start to bite borrowers. If anything will affect San Francisco prices, it will be that. (Clearly there are not too many underwater subprime borrowers in Pac. Heights).
We will, however, see a false bottom (and perhaps a bear market rally) coming up this winter when subprime ARM resets taper off.
The Fed IMO is still in control of the situation, but we are getting close to the waterfall that many of us have been anticipating for a while. At some point, as I mentioned to you in another thread, the USG will come in and nationalize the entire mortgage market. Fannie and Freddie will almost certainly fail. At that point – again, if I am right – everyone owning a house will be frozen in their “endowment” position. Prices will NOT be what people are thinking they will be. Anyone priced government cheese lately?
Sorry, but even though I don’t know what, exactly you’re trying to say, it sounds wacky.
My prediction: There won’t be any single cataclysmic event. The US will become, over time, more like a 3rd world country with the wealthy doing well, the middle class being squeezed more and more, and the poor falling out completely. It will take time, one household at a time. There will be no depression, there will be no revolution, we’ll all adjust.
At times Satchel sounds like one of those people warning that Y2K was going to be the end of the world as we know it.
When you can no longer con the easily duped Europeans and Asians into buying agency paper, the game is up. I am guessing there is a lot of furious behind the scenes deal making going on with the foreign central banks and the USG and Fed regarding who is going to eat the losses – because there is no way this money can be paid back. $6 trillion and counting, and the minute the USG explicitly backs the agency debt, USG debt/gdp goes to well over 110% (from about 60-70% today). Not good if you are the USG and you are counting on being able to fund all sorts of social programs to ease the coming suffering of the population (especially if you are a Democrat administration and large, public works programs hold the key to your continuing political viability).
In those behind the scenes negotiations with foreigners, in which the monied bank interests are represented by the Fed and the USG’s interests are represented by the administration and treasury, who is representing the homedebtors?
The choices are really stark. The US does not have enough $$ to fund itself. The population doesn’t save enough. In fact, the country needs to expand debt at an ever increasing rate just to maintain the current standard of living. I know I am a broken record here, but there is NO way out of this, other than the obvious. Assets are marked down, debt/money is destroyed, and the system readjusts to a lower baseline of living standards and (perhaps) future propects.
@cooper – the Fed is already trading treasuries (well, actual cash in the form of book entry digits) for agency paper. Take a look at the collateral requirements for the TAF and also check the MBS’s sloshing on the NYFed’s website (or The Slosh Report). You can check the Fed’s press release today (no change actually with regard to the acceptable collateral)(http://www.federalreserve.gov/newsevents/press/monetary/20080307a.htm). And yes, once again, just as EVERY DAY this week the Fed withdrew liquidity from the market – funny they keep doing this, no? – although I do expect that we will get some expansion in base money over the next few weeks as the increases in the TAF facility ramp up. I strongly doubt it will materially change the reality of monetary deflation that the fed has been pursuing since Feb 2006 when Bernanke was installed. Perhaps this disinflation/deflation is part of the “back room” deal?
John, I think we are in agreement. I don’t want sellers or anyone else to be screwed. I’m just noting that I don’t think this little change will significantly affect the current downturn in home prices. Rates are up, and this move is not going to affect rates in any material way such that prices would be affected. It sounds like you’re saying the same thing.
Seriously folks, let’s stick to the new jumbo-conforming guidelines (or at the very least the program in general).
Like the .75% loan-level price adjustment on adjustable-rate loans (.25% on fixed-rate).
And all of a sudden we’re right back where we started (except with stricter lending standards).
Let’s apply this news to a real-life situation.
I’m wondering if I benefit from the new Jumbo rules to refinance a 30 year fixed at a lower rate? My situation may not be typical, but here’s what I’m working with:
Townhome condo, primary residence in SF.
1st: ~$541K at 6.125%
2nd: ~$65K at 7.01%.
Both loans with same lender.
Comparable sales in complex: $835. I’d have to do some research, but I expect nearby comparables would be close to the same price.
Household income (gross): $210K
Each of us have a FICO of 800+
No debt other than this home loan.
Thoughts?
John, you are probably correct. I’m a closet buyer — I just don’t have the lack of fiscal responsibility so many other seem to have. If I did, I probably would have bought om 2006 or 2007 when I was actively in the market.
Also, they should just ban anyone from I/O loans except for the super rich with documented income levels.
Does anyone know if the DTI figre that FNM looks at is inclusive of all debt?
I would assume that it would be, so a potential borrowers total debt service (car payments, credit cards, student loans, other porpreties) plus the new mortgage & property tax burden would be used by FNM to come up with the DTI figure.
I was also puzzled by the following:
“0 X 30 payment history on all housing debts for the last 12 months (required for all mortgages and rental payments)”.
Does this mean that the borrower cannot have had any late (more than 30 days) rent or mortgage payments for the last year?
If the above assumptions are correct (and the yield looks good) I might consider picking up a little of this new paper for my account.
” Like the .75% loan-level price adjustment on adjustable rate loans”
So in terms of jumbo ARM interest rates, this makes the whole endeavor essentially pointless. Or am I missing something here?
As I understand it, loan-level price adjustment are basically points paid at closing. So, it won’t bump up the interest rate, but it is more $$ up front. Depending on the final rate difference to a jumbo, it may be a good or bad deal.
“0 X 30 payment history on all housing debts for the last 12 months (required for all mortgages and rental payments)”.
Does this mean that the borrower cannot have had any late (more than 30 days) rent or mortgage payments for the last year?
yes.
I’m wondering if I benefit from the new Jumbo rules to refinance a 30 year fixed at a lower rate? My situation may not be typical, but here’s what I’m working with:
Townhome condo, primary residence in SF.
1st: ~$541K at 6.125%
2nd: ~$65K at 7.01%.
Both loans with same lender.
Townhome owner:
My understanding is that using this program, you could refinance your FIRST mortgage, but you could NOT refinance first and second together into a new mortgage. (explicitly forbidden)
thus you would have to contact your second loan holder, and ask them to resubordinate under the new Fannie product.
also another problem, I’m not sure that the new conforming loans will be better than 6.125%
So it would only help you if:
1) the new Jumbo Conforming loans are cheaper than 6.125% (very possibly not)
2) your second loan holder will resubordinate (or you pay off your second loan note.
It doesn’t make the whole endeavor essentially pointless – if you are an investor in the loan or a FM/FM shareholder.
The investors and shareholders had been giving away money. That allowed homeowners to take more of it from buyers. And when the buyers saw that, it allowed the buyers to bid higher thinking that, one day, they too would be entitled to take that extra money from the investors and shareholders.
Today’s announcement signals a shift in the power of the investors of the loans vs. homeowners. The investors just grabbed a whole lot of money out of the transaction. This leaves less for the homeowners, and indicates to buyers that they too should expect this extra money to be sucked away from them.
And it also signals the other 94% of the buyers who have been shut out in the last weeks, that they are now locked out for good. They can try to qualify for an FHA loan, if they can get one, or they can spend the next few years saving up for a down payment.
And it further signals the investors who were so careless with their investments and handed money to anyone with a pulse that they won’t be bailed out by greater fool investors. Those existing investors were the greatEST fools. Their only option is to foreclose and lose a lot of their money. And that tends to make people extra shy about jumping back in. And THAT keeps interest rates high for the next few years.
So the whole endeavor was not pointless. Quite the contrary, many points were made today. The only thing that was pointless were the homeowners and realtors salivating in the last few weeks over the prospect of something, anything, “saving” the housing market from its inevitable decline. THAT was pointless.
Amen,
You are missing something. Loan-level price adjustments like all adjustments are never seen by the consumer. Fannie and Freddie have been adding new adjustments at an alarming pace of late. Adjustments can be made for:
property type
units
occupancy
ltv
cltv
dti
combinations of ltv, cltv and dti
and the recent “adverse market condition”
Some lenders work these “costs” into their published rates and others let the mortgage broker do the calculation before presenting the “rate quote” to the consumer.
The real reason for this adjustment, IMO, is due to SIFMAs “shot across the bow to Fannie and Freddie” http://www.sifma.org/news/63013316.shtml
Basically, they said they didn’t want these new loans included in the regular TBA pool of mortgage-backed securities. Fannie and Freddie really have no choice other than to create a new pool for these mortgages at higher rates to reflect the additional risk.
The .25 adjuster for 15 and 30 year fixed-rate loans translates to less than a 1/8% higher interest rate. The .75% 5/1 ARM adjuster equates to about 3/8% higher in rate. Not bad considering where the jumbo market is currently.
THE BIGGEST ISSUE that i haven’t seen discussed is the ltv/cltv limits for REFINANCES. LTV limits are 75% for the first mortgage with a cltv up to 95%, and not 80% or 90% as shown in the summary above.
My wife and I are looking to purchase a home on the peninsula due to relocation. We think that we will be about 600k financed or so (Great fico’s, 20% down, DTI well within guidelines). I am waiting for the new jumbo limits to take effect, but it seems like the rates are going up.
It does no good to wait for the new limits if the rates are going to be the same since they are going up…
Should I wait? Will the new limits help to ease the pressure and lower rates?
“- Can refinance a first loan, but cannot refinance a first and second into the new loan; if there is a second loan it must re-subordinate”
Am I missing somethng here? Everyone is focusing on the liklihood of the second lender extorting a huge payment or refusing to re-subordinate. But what’s stopping you from you re-fi’ing the second as well? Assuming you have adequate equity, etc. Short term rates are actually falling, so if you get a HELOC for prime or prime minus 50 basis points or more, it should be attractive, and allow many people to refi their first into a conforming loan.