What is the latest on loan limits? There are two bills (HR 1427, the House version, and S 2036, the Senate version) that would raise the conforming loan limit among other things, both supported by Bernanke and Paulson. H.R. 1427 passed in May 2007. (!) The bill would increase the conforming loan limit in high-cost areas to the minimum of either 150% of the national limit (to $625,500) or the median price in the same area. The higher limits do not apply to loans held as assets by the GSEs, only to mortgages packaged into MBS and sold by the GSEs. S. 2036 was introduced in the Senate in September 2007 but has not yet been subject to a vote. (!) The proposed increase in loan limits would be the same as in H.R. 1427. This bill would raise the loan limit for all conventional single-family mortgages, not just those serving as collateral in MBS. Importantly, the increase would be for only one year following enactment.
Jumbo Intermediate ARM rates are down in the 4% range if the borrower wants to pay a point. The 10-yr is down to 3.30% this morning, and mortgage prices are starting off better by another .250 in price.
Yesterday’s Fed move caused folks to think back on what Fed Funds really are. Remember that “Fed Funds” is the rate that banks can borrow money from each other to keep their reserve amounts in line. The “Discount Rate” is the interest rate at which an eligible financial institution may borrow funds directly from the Federal Reserve when their reserves dip below the reserve requirement. The Discount Rate is considered the last resort for banks, which usually borrow from each other. The Federal Reserve can change either, but they can’t change mortgage rates. If a borrower asks an agent why their mortgage lock doesn’t drop .75%, there are two answers. First, the loan is locked, and they have an obligation to the lender, just as if rates moved the other way. Second, moves in overnight rates aren’t directly linked to mortgage rates, and http://library.hsh.com/?row_id=91 may be a help to you. Mortgage rates are dependent upon many more complicated factors than the Fed raising or lowering them. The supply of mortgages, the demand by investors for them, the value of the servicing, the credit quality of the borrower, etc. all factor into mortgage rate. Also check out http://biz.yahoo.com/cnbc/080122/22783168.html
Regarding yesterday’s notes on the Bank of America/Countrywide union, please note that much of the content should be attributed to Bob Hagerty, who writes for the Wall Street Journal! Speaking of the Wall Street Journal, there is an article today discussing the Fed’s move. L. Meyer, a former Fed governor, believes that the FOMC wants to increase the pace of rate decreases, and stated that the Fed action "would be pointless" if it only moved up its action by a week. Along those lines, Lehman Brothers forecasts, a little late for Aurora’s good, “…a 25 basis point rate cut as likely at the scheduled meeting next week, followed by another 75 basis points of easing through June (.25% each in March, April and June). This places the terminal Fed funds rate at 2.50%.”
Gil Mora, Sr. Loan Officer