Wednesday, June 15, 2011

Important changes that will affect mortgage loans

Come October 1st, the conforming loan limit will in all probability be lowered to $625,500 in the NY metro area.  In other areas of the country, it will be lower than that.  The important questions to ask are why is it being lowered and what impact will that have on borrowers?

Why is it be lowered ?  I am sure there are several good explanations for this but let me tackle the one that makes the most sense to me.  It is no secret that the Federal Gov't wishes  the Fannie Mae and Freddie Mac problem to disappear quickly.  I am sure President Obama wishes he could pull an I Dream of Jeannie eye blink on the whole matter but he and all of us know that's not going to happen.  As our politicians try to come up with a plan of action on what to do with them, the stated goal is to either eliminate them completely or reduce their role significantly.  One way that they can reduce their role is to lower the limit.  Think about it-reduce the maximum limit from $729,750 to $625,500 and you eliminate a lot of potential government backed loans.  I don't have statistics on it but I have done many loans that fall between those 2 numbers this year alone. 
What impact will it have on borrowers ?

If Fannie/Freddie are not buying these then much of the slack is going to be picked up by savings banks and niche lenders.The big banks will end up with less volume and that's what the government wants. 

Banks that will lose production:               Banks that will gain production:
Chase                                                              Astoria
Wells Fargo                                                     Ridgewood
Citibank                                                           Hudson City
Bank of America                                              ISB

The government wants out of the mortgage business.  The next few years will determine just how far they can get out and how far they are willing to take it.

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