Volatile Week – Rates Still Low – Conforming Jumbo Limit Decreasing
Catching up with this big post for you since I realized I haven’t written in a few weeks!
This just in from Princeton Capital:
In one of the most volatile weeks ever seen, important economic news came out every day and produced major reactions in financial markets. Investor uncertainty is extremely high, amplifying the price movements. As stock prices fluctuated wildly, so did mortgage rates, which reached new lows for the year.
Into this highly charged environment, a steady flow of significant economic news added fuel to the flames. It began late last Friday with the announcement that S&P downgraded the credit rating of US debt. Then the Fed shocked investors with its statement (see below). A scare ran through financial markets that European banks, particularly in France, were at risk of failing, but these fears abated quickly. Investors were comforted by very strong demand for the 3-year and 10-year Treasury auctions, and then were taken aback by extremely poor results for the 30-year auction. It is not surprising that many financial markets set volatility records this week.
The biggest surprise in Tuesday’s FOMC statement was that the Fed currently anticipates that economic conditions will call for the fed funds rate to remain exceptionally low through at least the middle of 2013. The Fed also downgraded its forecast for economic growth, saying that it will be “considerably slower” than previously expected at the last FOMC meeting on June 22. Slower economic growth with few signs of higher inflation will make it more difficult for the labor market to recover, but it is a favorable environment for mortgage rates. (I added the emphasis.)
As for my own updates from just a couple of my great lender contacts this week, all say they are either staffing up or already staffed up for the refinance surge as well as the “last minute” buyers looking for loan amounts between $625,000 and $729,500. In case you are not aware of this, the Jumbo-Conforming Loan Limit for high cost areas, including San Mateo County, which was increased in 2008 to $729,500, is due to expire October 1, 2011 resetting the limit back to $625,000. This means the loan/property must close by September 30, 2011.
For Princeton Capital borrowers, Susan O’Driscoll says “anyone in that price range would need to go into contract in the next couple of weeks as most lenders are only funding up to September 23rd or sooner”.
My contact at Mason McDuffie, Julie Bell, reinforces that “non-conforming loan rates would be applied to any single family over $625,000, which currently are about ½% higher, if Washington doesn’t act. This may create a brisk $104,500 ($729,500 -$625,000) piggyback market for second mortgage with the conforming $625,000 first mortgage; but that would prevent the borrower from later getting a HELOC (unless it’s a HELOC in the 3rd position, which would be more expensive and difficult to find).”
The Senate (SB1508) and House (HR2508) introduced Bills this summer to extend this limit until 2013 but the outcome of those is undetermined. In the meantime, buyers are looking at the deadline which could mean an extra $100-$200 per month in loan payments (note: this is general info).
And the rest of us who don’t need home loans in that price range right now have a little more time to make things happen in our lives…
Conforming Jumbo Loans for Half Moon Bay Coastside Homes, written 2/19/2011