Conforming Loan Limits Extended Until September 30, 2011Share Link to this Print
By: Rosemary Rugnetta
October 1, 2010 (FreeRateUpdate.com) – Yesterday, the House and Senate both approved H.R. 3081 which included the extension of the increased conforming loan limit in high cost areas. This extension covers conforming loans limits that are backed by Fannie Mae, Freddie Mac and FHA (Federal Housing Administration) and will be in effect through the new fiscal year which ends September 30, 2011.
These higher loan limits were instituted in 2008 when President Bush signed the Housing and Recovery Act. Prior to that time, the conforming loan limit was $417,000 in high cost areas. Since the signing of the Recovery Act, the conforming loan limit has been $729,750 in most high cost areas or 150 percent of the median home values within a metropolitan area. In Alaska, Guam, Hawaii and the U.S. Virgin Islands, the high loan limit is $938,250. In 2008, at the height of the housing crisis, these higher loan limits made refinancing and home buying available to consumers who, otherwise, would have had no where to turn. Backed by the government, the jumbo conforming loan has become quite a popular product over the past two years while it has saved the jumbo mortgage market.
This high conforming loan limit is especially helpful in areas such as California and New York where normal housing tends to be much costlier than the rest of the country. With housing prices down, many borrowers in high cost areas have found that they are eligible for refinancing with a conforming jumbo loan. Even first time home buyers can take advantage of an FHA Conforming Jumbo Loan for their purchase. These loans carry lower interest rates than true jumbo loans with the Jumbo 30 year fixed rate at 4.875% (0.7 to 1 point), the Jumbo 15 year fixed at 4.375% (0.7 to 1 point) and the Jumbo 5/1 ARM at 4.00% (.07 to 1 point).
As the housing market continues to be fragile, the extension of this H.R. 3081 is great news. Without it, consumers would have found the jumbo loan market in critical condition. In reality, with fewer investors for jumbo loans, the jumbo loan market could have come to halt on December 31, 2010 had this bill not been extended. The possible implications could have trickled through the entire housing market creating another crisis. At the current time, approximately 90% loans are going through Fannie Mae, Freddie Mac and FHA. With this latest extension, it is obvious that their book of business will keep growing for another year as the housing market continues to heal. . With conforming loan limits extended until September 30, 2011, consumers can look forward to another year of low interest rates while the government continues to treat the housing market with tender care.