June 24 average daily rates in Orange County for 30-year fixed loans with one-point fee: Conforming up to 6.078%, Jumbo up to 7.446% and Conforming-Jumbo up to 7.208% (Note: conforming-jumbo rates are for loans from $417,000 to $729,750, while conforming is up to $417,000 -- both types are sold to GSEs. Jumbos here are $730,000 or higher and not sold to GSEs.)
Source: Newspaper Chart Services 
Dissecting the mortgage bailout
January 26th, 2008, 3:00 am · 13 Comments · posted by Matt Padilla, Register Reporter and Blogger
The distressed mortgage market could get serious help within weeks if Congress approves a tentative deal to raise the conforming loan limit for a year to nearly $730,000 from its current $417,000 in California and most other states.
While it’s still unclear exactly which areas would get the boost and if it will really be $730,000 or if some compromise is in the works, any significant increase could help many Orange County owners and housing shoppers save hundreds of dollars a month on a mortgage.
To get more on this potential phenomenal change and to learn more about the folks who buy conforming loans – Fannie Mae and Freddie Mac – Mortgage Insider quizzed Xudong An, an assistant professor of finance and endowed professor in real estate at San Diego State University who has conducted research into such government sponsored enterprises.
Q. So what’s your two cents on raising the limit?
A. I am not surprised, but I didn’t think it would be that much. First of all, some more borrowers will take out jumbo size loans. That’s good news for some borrowers and that’s definitely good for the mortgage market and housing market.
At the same time, I’m a little bit concerned about the risk that Fannie and Freddie are taking. Those loans, jumbo loans, they have a higher risk and we already known higher default rates. Fannie and Freddie either hold or securitize those loans; they take risk positions.
Q. Would Orange County get a limit of nearly $730,000 under the plan?
A. Not sure.
Q. Do you think it will pass Congress at $730,000 or be reduced closer to $625,000 as some Republicans propose?
A. I definitely think that bill will get passed, but that’s a real big increase in the limit, going from $417,000 to $700,000 something. I’ve heard of concerns of Fannie and Freddie’s risk positions with some people saying Fannie and Freddie have taken too much risk, although I personally don’t think that’s true.
Q. As long as we are on the topic of their risk positions … If Fannie or Freddie ever foundered, would the government bail them out?
A. Yes. No doubt on that.
Q. I read somewhere that when Fannie and Freddie issue mortgage securities they guarantee the principal but not the interest. Is that right? How does that work?
A. They guarantee fully and timely payment of interest and principal in their new programs.
Q. Getting back to the liquidity crunch and raising the loan limit, is that enough? With buyers of subprime and Alt-A loans gone, should Fannie and Freddie step up and buy some of those loans?
A. Yes. They should and I believe they will do so. Someone has to make the market. Fannie and Freddie have the mission of helping American households because of the implicit back up they get from the federal government. They also have the ability to handle the issue, which is to buy some but not all subprime and Alt-A loans. But at the same time, the approval by OFHEO or Congress is important to make sure Fannie and Freddie do not take too much risk and operate soundly and safely.
Q. You mean there needs to be more oversight?
A. That’s right. The appropriate regulation was not there in the subprime market and we already have seen the whole disaster. It would be a good idea. I think there is still room for Fannie and Freddie to expand their business, but more oversight is needed.
Q. On a related note, Fannie and Freddie recently began charging lenders more for loans to folks with lower FICO scores. What’s your two cents on the change? Is it a rational response to risk?
A. It reflects the current market condition that no one wants to take risk without right compensation. But I personally think that there’s more than that. It is good for Fannie and Freddie. Unfortunately, it is bad for the borrowers because those fees will be passed through to the borrowers through the lenders.
January 26th, 2008 at 7:31 am
http://news.yahoo.com/s/nm/20080125/bs_nm/usa_mortgages_bonds_jumbo_dc_1;_ylt=Aj0PzGJ0XzTqLlCQ3d9e5SUG1vAI
Some hurdles to overcome before limits get raised
January 26th, 2008 at 7:56 am
I’m amazed Calif. has $417,000 as their current loan limt with Hawaii having $625,000 as their limit. Our market in OC is comparable to Hi. Yet another example of feeral gov’t being out of touch with the housing market.
Remeber even if the limit is raised to $700k etc. homeowners can’t refi out of toxic loans if their loan to value is over 80% with Calif. being labeled a distressed market.
January 26th, 2008 at 9:35 am
“Unfortunately, it is bad for the borrowers because those fees will be passed through to the borrowers through the lenders.”
Just like it’s bad for drivers with moving violations who have to pay more for car insurance.
January 26th, 2008 at 10:12 am
From Calculated Risk;
“Traders: Don’t Put Jumbos in my TBAs
This probably wasn’t what Congress had in mind, ya think?
NEW YORK (Reuters) - A key element of the stimulus package aimed at jump-starting the ailing U.S. housing market may have the unintended consequence of raising mortgage rates, said analysts studying the plan.”
http://calculatedrisk.blogspot.com/2008/01/traders-dont-put-jumbos-in-my-tbas.html
We are definitely entering a world of unintended consequences!
January 26th, 2008 at 10:18 am
yeah the good ol federal government has everything
under control… why it seems like only yesterday that
they had a similar bailout plan……
http://www.marketwatch.com/news/story/great-fiscal-stimulus-package-/story.aspx?guid=%7BD3B850E5%2DE05D%2D40DA%2DA630%2D42B3CB838AE9%7D
January 26th, 2008 at 10:19 am
“Q . . . With buyers of subprime and Alt-A loans gone, should Fannie and Freddie step up and buy some of those loans?
A. Yes. They should and I believe they will do so. Someone has to make the market.”
Only if they are marked down significantly in price. And if that’s the case, others besides Fannie and Freddie will take them.
Now if you want Fannie and Freddie to take them without marking them down to the price the rest of the market would accept, why would they do that?
“Unfortunately, it is bad for the borrowers because those fees will be passed through to the borrowers through the lenders.”
Come on. Mortgages were priced too cheaply during the boom. A return to sanity is not a bad thing, is it? Besides, mortgage rates are still at historic lows. How is this “bad for borrowers?”
January 26th, 2008 at 11:11 am
Is not this raising of conforming loan limits a form of ‘red lining’?
Why should one county or region benefit from lower cost jumbo home
loans and not another? Since the impact of this will affect both the price and marketability of homes why should a builder or homeowner
in Orange County benefit from a government backed loan and a builder or homeowner in, say, Kern County?
This could have other deleterious impact on some areas as well. Those areas included in the high loan region could be expected to see
more expensive homes built there and those on the wrong side of the line lower cost homes. This would impact commercial development and thus sales tax revenue.
On the east coast, in places like Washington, D.C. where the suburbs
of one metro area run to the suburbs of another the effect could be particularly egregious to builders, sellers and realtors trying to sell upscale property. A buyer would quickly realize purchasing a equally priced home on the wrong side of the line would cost him hundreds of dollars per month more than were he/she to buy one just a few miles
away. Fair?
Certainly if a private lender attempted to manipulate his lending practices like this he would risk prison for violating Fair Housing and Lending laws as well as the 14th Amendment to the US Constitution. I don’t see how having the federal government doing the same makes it OK.
January 26th, 2008 at 12:00 pm
Why does this commentator blithely assert that raising the limits creates a “higher risk”. I flatly say WRONG. The size of the loan is not inherently related to the riskiness of the loan. Risk is created by taking on poor loans, be they a dollar or a million. The GSE’s should be begging to take on high quality jumbos, and shunning low quality “conforming”. As a matter of fairness and policy, it is manifestly a hose job that my tax dollars (yes, high income, high tax, hich cost California dollars) effectively subsidize loans all over the country, while I have to pay more for my jumbo. (Then the AMT and various deduction limits cork you on the other end, after you try to deduct the higher intrest you paid).
There is no fair policy justification for having low conforming limits in California. The higher limits in other jurisdictions like Hawaii just make the unfairness more obvious. Out of this entire mortagage/ bubble mess, raising conforming limits in California is about the only sane proposal. (And thank you, Washington, for giving free “tax rebates” to people who didn’t pay any taxes, while denying me a rebate because my spouse and I “make too much”). Maybe Nader was correct, there being no real difference between the Reps and Dems.
January 26th, 2008 at 12:21 pm
The real issues:
1- GSE- government sponsored enterprises are a form of socialism
They take from responsible people who work and pay taxes to create an infrastructure of working roads, police and fire. Then they give these tax dollars as a guarentee so speculators can minimize their gambling debt in GSEs like Fannie Mae and Freddie Mac.
2- Raising the limit will only create more of a tax liabilty for everyone. Our government will be on the hook to bail out a bigger calamity.
3- This guy didn’t say one word about the absolute corruption at fannie and freddie. Fannie just started reporting some numbers again after having to admit they made up most of their accounting for several years. Very few people believe these new set of numbers.
January 26th, 2008 at 12:36 pm
This is not a bailout, but an out and out mother of all scams played on citizens of OC, California and the United States! When would the Federal Reserve, the Bush Administration, and Cogress need to bail out scammers who suck homes back into their bank or lending establishment, and set Americans on the street? Where is Baroque Obama, as well as Hillary, Dillary and Dock? Why don’t they expose this sham for what it is, and what role is it playing, when a Las Vegas hotel burned down today? On that seems to have a similar name to the stock market instrument abused by bankers and lenders, HEDGED MONTE-CARLO!
January 26th, 2008 at 2:08 pm
the upcoming accounting charade for the financials will make the
enron debaucle look like childs play….
http://www.youtube.com/watch?v=e3FfgbW-C7M&feature=related
January 26th, 2008 at 9:45 pm
Whatever happened to “affordable” housing. It seems this is to keep all asset prices high. If no one new can enter the housing market, no one can get out, and no one can trade up or down what have we gained? I believe that the markets are already punishing those that got us into this mess namely Wall Street, Banks, Mortgage Brokers, Appraisers, Realtors, and speculators. Now we want to punish the non participating savers and taxpayers. Let the markets work.
January 27th, 2008 at 3:05 pm
the government is pulling out all stops to
help preserve this madness…need I say more?
http://www.doctorhousingbubble.com/real-homes-of-genius-special-edition-lifestyles-of-the-poor-and-notorious-10-southern-california-homes-that-prove-a-gargantuan-housing-bubble/