Freddie Mac and Fannie Mae Loan Limits for 2012

The 2012 loan limits for Freddie Mac and Fannie Mae have been released.

HousingLogic.com reports that the largest loan guaranteed by Fannie Mae or Freddie Mac will remain the same size in 2012 everywhere in the United States, except for in Fairfield County, Connecticut, where the limit will rise to $625,500, which is the same maximum loan size available in other high-cost areas.

According to HousingLogic, “In areas where homes are more affordable, the conforming loan limits will stay the same in 2012 for home buyers and home owners who want to refinance:

To check the loan limit in your area, visit the Federal Housing Finance Agency website.

HARP Expansion to Reach More Buyers

At a campaign stop in Nevada last week, President Obama announced an expansion of the HARP (Home Affordable Refinance Program), eliminating the current maximum Loan-To-Value (LTV) ration of 125%.  RIS Media reports:

The Federal Housing Finance Agency, with Fannie Mae and Freddie Mac (the Enterprises), has announced a series of changes to the Home Affordable Refinance Program (HARP) in an effort to attract more eligible borrowers who can benefit from refinancing their home mortgage. The program enhancements were developed at FHFA’s direction with input from lenders, mortgage insurers and other industry participants.

FHFA Acting Director Edward J. DeMarco stated:

“We know that there are many homeowners who are eligible to refinance under HARP and those are the borrowers we want to reach…Building on the industry’s experience with HARP over the last two years, we have identified several changes that will make the program accessible to more borrowers with mortgages owned or guaranteed by the Enterprises. Our goal in pursuing these changes is to create refinancing opportunities for these borrowers, while reducing risk for Fannie Mae and Freddie Mac and bringing a measure of stability to housing markets.”

Of the 9 million families that Fannie Mae and Freddie Mac have helped refinance into a lower cost or more sustainable mortgage product, about 10% of those via HARP.

“HARP is unique in that it is the only refinance program that enables borrowers who owe more than their home is worth to take advantage of low interest rates and other refinancing benefits. This program will continue to be available to borrowers with loans sold to the Enterprises on or before May 31, 2009 with current loan-t0-value (LTV) ratios above 80 percent.”

Since program specifics won’t be released until next month, the KCM Blog offered these highlights:

  • It will only pertain to loans currently being serviced by Fannie Mae or Freddie Mac
  • Because of the removal of the LTV cap, appraisals may not be required
  • With the only qualifying criteria announced being that the last six payments be on time, it is possible that income documentation may be streamlined and credit scores might be more forgiving
  • Fees allegedly will be reduced
  • Incentives may be offered to people who shorten their repayment time
  • It also sounds that the banks may be given some incentive by not holding them liable for the underwater portion of the new loan (a major incentive for sure).

By eliminating certain risk-based fees, borrowers will be encouraged to utilize HARP to refinance into shorter-term mortgages. Borrowers who owe more on their house than the house is worth will be able to reduce the balance owed much faster if they take advantage of today’s low interest rates by shortening the term of their mortgage.

President Obama’s executive move has been praised by many as “the right action at the right time,” as bit of financial relief to many struggling homeowners throughout the nation.

New Conforming Loan Limits

Effective October 1, the previously elevated conforming loan limit for home mortgages, were brought back down.  In Los Angeles, the maximum conforming loan amount fell by more than $100,00.  The federal government previously increased the conforming loan limit (which is the maximum loan that sold to FannieMae, FreddieMac and GinnieMae) as a part of their housing market rescue efforts.  Unfortunately this intervention came with an expiration date of September 30, 2011.

Why it Matters

According to Zillow, “Your once ‘conforming mortgage’ could soon become a jumbo loan, with mortgage rates on the latter pricing about half a percentage point or higher than the former. So instead of enjoying an interest rate of 4.00% on your home loan, you may be stuck paying 4.50% or higher for the same mortgage next week.”

Conforming loans are easier to qualify for, require less of a down payment, and are more marketable to investors and cheaper for consumers because they can be sold on the secondary loan market.

What You Can Do

There are definitely options available to homeowners and home buyers affected by the change.  Buyers should consider putting down more money upfront to keep the loan amount at or below the new loan limit.   Another option could be breaking up your loan into a first and second mortgage, so as to keep the first below the conforming limit.   This will make qualifying easier and will reduce your interest rate, potentially saving you a significant amount of money in the long run.  Lenders will also be more accommodating as a result of this change in conforming loan limits.

According to Zillow, though, “Only about one percent of loans extended to homeowners over the past three years would have been affected by this change, so most of us won’t even notice.”

Fannie Mae’s New “Delayed Financing Rule”

If you are purchasing or have recently purchased a home with all cash, there may be some good news for you.  Fannie Mae’s new Delayed Financing Rule will give all cash buyers a new post-purchase financing option.

Under current Fannie Mae regulations, all cash buyers may not apply for a cash-out refinance before 6 months have lapsed.

The Delayed Financing Rule, introduced as part of Fannie Mae’s Selling Guide update SEL-2011-05, home purchasers may now pay all cash for a property, and then immediately take out a mortgage.

According to Fannie Mae, eligibility depends on:

  • The new loan amount is not more than the documented purchase price
  • The purchase transaction was an arms-length transaction.
  • Purchase transaction documented by the HUD-1
  • HUD-1 confirms no mortgage financing was used in purchase transaction
  • Title report confirming there are no liens on the subject property
  • The source of funds for the purchase transaction can be documented
  • Any loans used as the source for the purchase transaction will be required to be repaid on the new HUD-1.
  • All other cash-out refinance eligibility requirements are met and cash-out pricing is applied

Although intended for real estate investors, you don’t have to be an investor to take advantage of the Delayed Financing Rule.   Mortgage rates, closing schedules, and underwriting process will remain the same as with any cash-out refinance, and no specific fees will be attached to the loan.