Restrictions Could Limit Benefits For Jumbo Borrowers and Potentially Freeze Loan Markets

Jumbo loan borrowers may not see much in the way of relief on interest rates on loans above the current $417K conforming loan limit despite higher loan limits being a part of the economic stimulus bill signed into law by President Bush February 13.

The Securities Industry and Financial Markets Association (SIFMA) announced that the new "jumbo light" loans of up to $729,750 that Fannie Mae, Freddie Mac and FHA were temporarily authorized to buy or back as part of the economic stimulus bill will not be traded in the "to be announced"(TBA) market where most conforming loans are sold.

The reason for this, according to SIFMA, is that allowing the new, larger loans to be included in pools of mortgage-backed securities (MBS) traded on the TBA market could raise rates on conforming loans because uncertainties about how they will perform could raise the costs or impair the trades of MBS.

"Possible side effects include...check with your lawmaker before taking..."

Fannie Mae said that they had no comment on the decision.

Freddie Mac told Reuters that they had decided to put jumbo loans into separate pools before SIFMA's announcement. But placing jumbo loans in separate pools could delay the interest rate deductions that lawmakers had hoped to achieve by years' end.

With MBS issued by Fannie Mae, Freddie Mac and Ginnie Mae accounting for more than 80 percent of all mortgage-backed securities, it's crucial that there is continued liquidity of the loan market. Without that liquidity, the industry could seize up and we could all be facing big problems.

Source: InmanNews

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Comments

[Flagler Beach Florida Real Estate]

Many people are looking to July for how this will all play out and I see the Luxury Real Estate may not fair as well as they hopped. I see areas like California and Nevada and SW Florida this will be especially important to.