STATEMENT OF OFHEO DIRECTOR
JAMES B. LOCKHART ON CONFORMING LOAN LIMIT INCREASE

“We are very disappointed in the proposal to increase the conforming loan limit as we believe it is a mistake to do so in the absence of comprehensive GSE regulatory reform. To restore confidence in the markets we must ensure that the GSEs’ regulator has all the necessary safety and soundness tools. ”

Yesterday Chairman Dodd talked about moving a GSE reform bill early this year. We are ready to work with him and the Senate Banking Committee. We will also be working with Fannie Mae and Freddie Mac to ensure that any increase in the conforming loan limit moves through their rigorous new product approval process quickly and has appropriate risk management policies and capital in place.

For those of us who feel that increasing the conforming limit is, in fact, a BAD Idea, we can take comfort from an article by Herb Greenberg of Marketwatch, who points out that there aren’t likely to be a lot of borrowers who qualify anyway:
–New borrowers still have to qualify. Fannie/Freddie is full doc only primarily.
–Without stated income for wage earners, it’s tough to qualify for a $700,000 loan.
–In 2005 to 2007, 70% of all jumbos were stated income for a reason: Ninety percent of all stated income borrowers lied about their income to qualify.
–Refi’s will still have trouble due to values dropping in jumbo areas by such a large amount. These are the ones that really need the help.

We jumped and locked yesterday. When the dust clears we’ll be down to 5% from 6.25% and save $200/month on P&I. We’ve got the cash to pay closing costs out of pocket and should recoup those costs in a year or so.

What is the interest rate after factoring in the closing costs? That’s why I think no-cost rates should be used, to compare apples-to-apples.

This ignores what is happening to credit standards – a bank isn’t going to lend out money (even if it can borrow the money from the Fed at 0% interest), unless it thinks it can get paid back. So, down payments of 20% (30% in sharply declining markets), requiring strict documentation of income, a requirement that you sell your previous house before you buy your new one, etc., will massively reduce the pool of potential buyers.

A lower interest rate will benefit only those purchasers who can meet the new, strict credit requirements.

If the low interest rates has taken the price pressure off somewhat an increase will put it right back. Meaning there is really a very limited risk in waiting as long as the inventory is not dropping dramatically. The potential upside of waiting however is huge. To buy now has the opposite odds, huge risk and very limited upside. The main bubble driver was that lenders gave money to people who couldn’t afford it. That has changed and no stimulus package or interest rate level will reinstate that behaviour.

Most likely a temporary blip because we all agree home prices must come down! Then there is Reno. A death march in trying to get things sold. No economy and No Californians to buy their homes.

Ray Pepper
http://www.500Realty.net

The credit is yours. You took action. But, if you are really feeling generous, I like 12 oz. single shot mocha’s. :)

Yesterday, for a brief and shining moment, I saw a few credit unions posting 5.25% or lower with no point buy-downs.

We jumped and locked yesterday. When the dust clears we’ll be down to 5% from 6.25% and save $200/month on P&I. We’ve got the cash to pay closing costs out of pocket and should recoup those costs in a year or so.

The lower monthly payment means we should easily be able to rent this house out for enough to cover PITI and maintenance when we’re ready to move on in a few years….

Thanks again for the notice, SCrow!

Unfortunately that POS is now worth less than the loan balance, so you can’t refinance. Also many FB’s wouldn’t qualify on the basis of documented income either.

Even if the price/rent ratio is lower than the 15-year historical average?

Nice footwork. The “15-year historical average” has been grossly inflated by the bubble prices of the last 5 years. Where’s the price/rent lower than the historical median for the last 10 years before the bubble, or even for the whole 15 years up to now? And even that is high when you compare it to the whole post-WWII period, never mind the 1930’s.

You buy a home today with 20% down and Merrill Lynch is proven right and we have a 20-30% price correction in the next two-three years.

Merrill Lynch may have to reassess that prediction given the lastest info, namely lower interest rates (good for buyers, bad for renters/savers) and the concomitant inflation (ditto). Homes that used to be 20% overpriced may now be only, say, 10% overpriced.

You’d have to be a complete and utter moron *cough* david louse *cough* right now.

Under 5% didn’t last long today. One of the lenders I work with had 6 rate changes today (3 rate sheets from one lender in one day is a lot). In fact, rates are back to low 5’s for a 30 year fixed conforming. And yes…that means credit scores 680 or better and 20% equity.

To be comparable apples-to-apples, all the rates should be for no cost loans. A sub-5% rate can really be 6+% when, say, 4 points are charged, plus misc. fees that are not factored into the APR. The lowest no-cost rate I’ve seen since 1990 is 5.5% circa 2003.

Even if real house prices drop during an inflationary period, your real debt also disappears.

But effectively not, if your nominal wages are stagnant (your real wage drops) and you don’t have money invested to take advantage of the higher interest rates.

If deflation occurs, holding onto cash and buying after everything has dropped in price is going to look smart.

Unless the deflation is massive, in which case you better have that cash in the form of gold you buried in the ground, and not just bits on a bank’s hard drive.

If you expect inflation, and the Fed’s actions seem to make that more likely, the buying today at a low interest rate makes more sense even if you believe that housing prices in real dollars will fall.

I agree, and buying today makes sense as well if you expect massive deflation, unless you’re confident you can fairly convert those gold coins hidden in the ground into a house later.

The case for waiting to buy is what remains: moderate inflation or deflation, interest rates don’t rise too much, and Seattle doesn’t become (or hasn’t become) too popular, so that a price bubble can deflate.

if i was going to be here long term and had the cash for a down payment handy, i would consider buying even at silly inflated prices in order to secure such a low interest rate because i think we’ll see inflation above 3% for a while. maybe even above 5%.

Plus CD rates on savings are going to be in the toilet.

Anyone looking to buy at this time should just throw their down payment in the trash- it’s less hassle, and gives you the same result.

Even if the price/rent ratio is lower than the 15-year historical average? (That is, the price is cheap compared to renting a comparable place.) Lots of houses on the Eastside qualify as cheap.

WestSideBilly said,

on January 23rd, 2008 at 4:52 pm

The_Tim did a post with some quickie photoshopping comparing Yun to Al-Sahef.

That’s Awesome!.. off to the Archives..

Of course, this is not simple and may not be very profitable depending on overhead, but it is theoretically possible.

“There are no American infidels in Baghdad. Never!”

and

“I triple guarantee you, there are no American soldiers in Baghdad.”

About the same time a tank rolled by outside..

Yea.. I think Yun’s about at that level…

Heck, when Merrill gets their teeth kicked in by all the nutty CDO garbage losses, due to the “unprecedented” run up in housing prices….Lawrence, how else do you expect them to report? Anybody see the terribly funny irony in that statement?

Now that is material for Saturday Night Live, lol!

I think many on this blog are still waiting for the 30-40% increase in median prices that Lawrence Yun discussed for 2007 housing in the Puget Sound region.

Perhaps this report can make your choice a bit easier?

http://money.cnn.com/2008/01/23/real_estate/merrill_forecast/index.htm?postversion=2008012317

so which is it? hyperinflation, deflation, or regular old 3% inflation?

the lenders are willing to make the 30 year bet on regular old 3% inflation by lending at less than 5%, so we know where they stand.

if i was going to be here long term and had the cash for a down payment handy, i would consider buying even at silly inflated prices in order to secure such a low interest rate because i think we’ll see inflation above 3% for a while. maybe even above 5%.

in this case i’m using “inflation” to refer to the change in cost of living and incomes, not to the change in the size of the total money supply.

I wouldn’t call it cheering. I would call it paying attention.

The Fed’s rate cuts have the potential to trigger strong inflation, but they are doing it to stop sudden deflation caused by the credit contraction.

One can place bets on what will happen. Taking out a multi-hundred thousand dollar loan on a house that you think is overpriced is a bet on inflation. Even if real house prices drop during an inflationary period, your real debt also disappears. During periods of high inflation, interest rates are high because lenders do not want to see their loans evaporate away due to the inflation. Taking out a large loan at a low interest rate before a period of strong inflation looks really smart.

On the other hand, if we see a deflationary period then that debt is going to grow quickly with respect to everything else. If deflation occurs, holding onto cash and buying after everything has dropped in price is going to look smart.

The argument here has been that housing is overvalued in today’s dollars and that market will see a deflation. Even without general deflation, most people here are expecting housing prices to drop. The Fed’s actions can change that expectation. Instead of housing prices dropping, the price of everything else (including salaries) could catch up to the overinflation value of housing today. If that happens, you will be able to buy the same house at the same price but at a much higher interest rate on your loan. If you expect inflation, and the Fed’s actions seem to make that more likely, the buying today at a low interest rate makes more sense even if you believe that housing prices in real dollars will fall.

BTW Nozferatu maybe people would take you serious if your name wasnt taken from an old anime! =) (j/k)

If you have a paltry principle that puts interest payments just high enough to be bigger than the standard tax deduction: ya get to deduct property tax, charities, sales tax, etc, etc off your income. Sure, ya pay taxes on the interest of cash ya didn’t pay off your house with….but a lower interest rate would upset the system.

I still think owning a home free and clear is somewhat better, but deducting stuff on the long form is fine too, if you have the ready cash to buy your house title at any time and your debt is just a planned tax loophole. Actually, ya kind of break even.

“Just the fact that it is being pitched here is enough in book to say it like it is”…

I don’t see anything being “pitched” here.

It has been years since rates have been this low so it is newsworthy and will help some people out.

I guess alot of you haven’t paid attention the titles of his other blog entries? I wouldn’t call it “good news…” and certainly not positive light for Seattle.

I think when push comes to shove, the crowd on both sides is generally the same…the people cheering for drops are cut from the same cloth as the scammers and flippers who made out like bandits. It’s all preaching in retrospect.

There aren’t many of them though. I want to wait for more selection, but I think this window with this interest rate might be small. If interest rates start to go back up then prices are going to have to continue falling to get me interested again.

The fact that S-Crow is publicizing the current low interest rates gives much more credibility to this site. These low rates are kind of a surprise. I would be much more worried if the bloggers here continued to say “Don’t buy…Ever!” This blog isn’t called neverbuyaseattlehouse.com. Instead, it is dedicated to issues surrounding the housing bubble (which we are in).

As for sending mixed messages, I don’t see it. S-Crow never said “you need to buy now!” He said, “If you are considering refinancing, please contact your loan officer.” If I owned a house, this would be a great time to refinance. As a renter though, I still believe that prices will fall over the next 1-2 years.

I don’t know how this makes anybody a hypocrite. Take your outrage elsewhere please.

Utilize your reading comprehension skills. That post was made by S-Crow, not “the Tim”. I haven’t seen him “pitching bad news” as he works in the real estate biz and usually keeps it pretty real and unbiased.

All I can say is there’s a huge amount of hyprocrisy going on here.

You’re losing credibility FAST. What a ridiculous thing to say while you’re preaching other crap???? So how does it benefit us all that the rates went down on overpriced POS homes?

Geez……………………………

But even if the recession is mild or doesn’t come to pass (yah yah, I know), lower rates will not have much effect. Houses didn’t tumble in Boston, San Diego, and Miami (to name a few) because of rates, they tumbled because they ran out of new buyers. Lowering the rates will not appreciably increase the rate of new buyers. If a twenty something didn’t buy a first house two years ago when rates were around 4% and house prices were 20% lower, then it’s highly unlikely that they are going to buy now.

By the way, thanks for the heads up, SCrow. My husband and I have been watching rates fall, to our amazement, and I think we might just jump on it and refi.

And it may be mildly amusing! “Weeee! Watch me throw away $80k! Ha Ha!”

Anyone looking to buy at this time should just throw their down payment in the trash- it’s less hassle, and gives you the same result.

http://money.cnn.com/2008/01/23/real_estate/merrill_forecast/index.htm?postversion=2008012313