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REALTOR®: Conforming Loans Will Happen, But Not Overnight

Wednesday, March 5, 2008

The Department of Housing and Urban Development has officially raised the new conforming limits for loans guaranteed by the Federal Housing Administration in Santa Clara, San Mateo and 12 other high-cost California counties to a maximum of $729,750, but experts in the field believe conforming loans are not going to happen overnight.

"The bill has been passed, and HUD has set the new conforming loan limits, but I expect it will more likely be 60 to 90 days before we can actually start utilizing the new loan limits," Gabe Bodner, an affiliate of the Silicon Valley Association of REALTORS® (SILVAR), who is with Lawson & Associates Mortgage Planners in Campbell, told Realtors at a recent tour meeting.

Bodner said the counties that get the $729,750 maximum for FHA loans are likely to get that same level for Fannie and Freddie mortgages, since HUD is also expected to determine new Freddie and Fannie limits for other parts of the country as well, but the process takes time.

"Once the information goes to Fannie Mae and Freddie Mac, they will then need to update their systems and processes in order to roll out to lenders, so underwriters can understand the new possible restrictions and limitations of programs and products with these new limits and guidelines," Bodner explained.

Bodner said overall, the new conforming loan limits "are a good change because any time a loan is within the conforming loan limits, it means the lender is insured by Fannie Mae or Freddie Mac, therefore the lender has more flexibility in their guidelines – lower credit score requirements, higher debt to income ratios, lower down payment requirements. This will allow more flexibility for lenders and borrowers as well, since these loans will be guaranteed by these entities."

In the meantime, there could be changes in the mortgage interest rates, said Bodner. "The expectation is mortgage rates will go up because the higher loan amount equates the higher risk, and any time this happens it means increased interest rates. With a higher demand, rates go up too."
SILVAR's past president, John Tripp, remains cautiously optimistic. He said, "The change in loan limits would have the ability to stimulate the market, but a downside would be underwriting will be tightened in many markets."

A recent report by Inman News states lenders are tightening underwriting standards in markets identified as distressed or soft, increasing down payment requirements and making stated-income loans off limits in some markets. The news service also reported government-chartered mortgage financers Fannie Mae and Freddie Mac have increased surcharges for borrowers with credit scores below 680 and are requiring down payments of at least 5 percent on all loans in declining markets.

Tripp analyzed the effect of these changes on the local market. "Are these changes going to affect the more affluent market? I see less of an impact of all these on the housing market in Silicon Valley. Overall, our market is going to stay positive. There are still good opportunities to be had."

Bodner agrees with Tripp. "Now is still a good time to buy a home because rates are very low, and there are still good opportunities, good properties, good deals. Silicon Valley is always going to have a certain degree of demand because we have an international demand," said Bodner. "There are many local businesses relocating people from overseas here because the Euro is very strong against the dollar. And because of a strong job market in our area, there is a constant demand for housing in Silicon Valley."

In addition to the counties of Santa Clara and San Mateo, the counties at the maximum level for FHA loans include Alameda, Contra Costa, Los Angeles, Marin, Monterey, Napa, Orange, San Benito, San Francisco, Santa Barbara, Santa Cruz and Ventura.

Realtors believe increasing the conforming loan limits will assuage homeowners concerns, help foreclosures by giving them the opportunity to refinance, and increase people's confidence in the market.


The Silicon Valley Association of REALTORS® (SILVAR) is a professional trade organization representing over 4,000 REALTORS® and Affiliate members engaged in the real estate business on the Peninsula and in the South Bay. SILVAR promotes the highest ethical standards of real estate practice, serves as an advocate for homeownership and homeowners, and represents the interests of property owners in Silicon Valley.

The term "REALTOR®" is a registered collective membership mark which identifies a real estate professional who is a member of the National Association of REALTORS® and who subscribes to its strict Code of Ethics.

Variations of this article have appeared in local area newspapers.

For further information, please contact Rose Meily at SILVAR Public Affairs, email , or phone (408) 200-0109.

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