. . . Said my friend Amy to me the other day. Since she is sort of a typical first time buyer, (actually not), I decided to make an example of her and contribute to her 15 mins of fame.

Amy is your somewhat typical Sillycon Valley MBA tech-marketing type. She works in marketing for a large company, so her income is derived from her salary, as opposed to commissions or stock options that may or may not vest. The company is stable, so her bonuses tend to be consistent and her income fairly predictable. She recently moved from one giant tech company to a large one, so she has a number of years of experience in her industry and job classification, excellent credit, and some equity from a condo that she sold.

Being an MBA, and financially conservative (politically liberal), she can comfortably afford something in the $650K price range, even in the current lending environment. The previous idea was for her to take out two mortgages, a conforming loan of $417,000, and then a second or equity line to cover the rest.

Now that Mr. W. has signed off on the stimulus package that included a short-term increase in the conforming loan limit for 2008, Amy’s interest in buying a house has gone up. The tax rebate will let her buy her kids a happy meal and some new jeans, so her interest is much more in the mortgage changes.

At the time of our conversation, the difference in rates between a conforming (under $417,000) and jumbo ($417,001+) loan was about .75%, depending on a million things, which I will leave to co-contributor Eric Trailer to explain. Jsut plugging in some numbers, on a loan of $585,000 (10% down on our $650K house), her payments would drop about $4300 a year excluding taxes if that loan was at the lower rate. Now we are talking interesting.

Admittedly, this is very simplified, because it doesn’t take into account the cost of a conforming first and then a second, or whether lenders will have tiered pricing based on the loan amount, or credit scores, documented vs. non-documented income, etc., etc., etc.

My intent is to show the effect of this new law on “normal” Silicon Valley home buyers who have “normal” jobs, and are trying to put a roof over their heads. While the tax rebates of a few hundred dollars will only have minor impacts on most of us (I get $300, I think), the effect on home buying capability will be potentially significant.

Let the comments fly, and thanks for reading.

Tags: 2008 loan limits, Conforming Loans, economic stimulus, Home buying, Jumbo Loans, Mortgage, mortgage mania, mortgage rates, new home buyer

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Ah yes, the sweet, sweet smell of pork comes wafting across the country from Washington D.C. where, CAR informs us, the final Stimulus Package bill includes increased conforming loan limits — a feature that had earlier been in danger of not making it through.  The CAR press release:

Thanks in part to lobbying by C.A.R. and NAR members, the Senate passed their version of an economic stimulus package today, Thursday, February 07, 2008.  The Senate version expands rebate checks for seniors and disabled veterans and includes the same increases to the conforming loan limits for both GSE and FHA found in the House stimulus package.  The House just passed the Senate version of the bill  and it will now be sent to the White House. The President is expected to sign the legislation by the end of next week, ahead of the Congressional self-appointed deadline of February 15^th.   The increase in the conforming loan limits will last through 2008, but C.A.R. and NAR continue to lobby for FHA and GSE reform,  making these increases permanent.

Interpretation:  it’s an election year and the national debt already has more digits than a centipede, so what’s another couple of gazillion bucks?

As soon as this bill passes, expect a wave of re-financing for folks in California and other high-priced states who weren’t able to qualify for conforming loans at the old limit of $417K, but will now qualify with the higher limit of some $700K.  Given that the delta between interest rates on conforming and Jumbo loans is a full percent or more, that could spell big relief for some.

Problem is:  Will the typical homeowner who benefits from this actually squirrel away the extra couple of hundred bucks, or instead blow it on more toys?

Other commentary:

• theFrontSteps modestly shuns credit for the bill’s passage.
• SocketSite hosts a lively comment debate on the topic.

Tags: Conforming Loans, Consumer, Election Year Shenanigans, Industry, Jumbo Loans, Mortgage, Politics, Pork

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