Changes in the rules for selling jumbo mortgages to secondary market investors could mean lower interest rates for home buyers seeking loans that fall within the new $625,550 limit for purchase or guarantee by Fannie Mae and Freddie Mac in high-cost housing markets that takes effect Jan. 1.The Securities Industry and Financial Markets Association says it will allow Fannie, Freddie and Ginnie Mae to mix a limited number of the “jumbo conforming” loans — no more than 10 percent — in pools of conforming loans sold to secondary market investors for “To-Be-Announced” delivery. The TBA market is considered the most important secondary market for mortgages because bonds are traded even before the specific loans that back them are actually identified. “We expect higher balance borrowers to receive both rate relief and increased liquidity as was desired in the legislation, while retaining the overall liquidity of the TBA market,” SIFMA managing director Sean Davy said in a statement. The new arrangement “preserves the overall homogeneity of the market while at the same time minimizing the risk of a negative impact on mortgage rates for lower-balance-loan borrowers, or, potentially, all borrowers.” When Congress and the Bush administration in February granted Fannie and Freddie temporary authority to purchase loans of up to $729,750 as part of the economic stimulus bill, SIFMA ruled that the larger loans could not be mixed into the same pools with mortgages that fell within the $417,000 conforming loan limit. The industry association was concerned that investors would have difficulty valuing pools of mixed jumbo and conforming loans, and that interest rates on conforming loans might go up because of worries about the performance of the larger loans. With the temporary $729,750 limit expiring at the end of the year, SIFMA is ready to allow some mixing and matching of conforming mortgages with loans up to the new $625,550 limit for high-cost areas established by the sweeping housing bill signed into law at the end of July, HR 3221.Despite the higher limits, Fannie and Freddie haven’t played a big role in the jumbo loan market, and analysts at Barclays Capital estimate that only 15 percent of jumbo loan borrowers will qualify under the new $625,550 loan limit.

Please click here to access the PDF document that contains the embedded links to the Housing Bill. 

Although existing-home sales have been soft since the beginning of this year, they are expected to improve notably during the second half of 2008, according to a forecast by the NATIONAL ASSOCIATION OF REALTORS® (NAR). Statistics suggest a sizeable pent-up demand for homes, according to NAR Chief Economist Lawrence Yun, which will be released into the marketplace as excessive home-buyer pessimism about the market begins to subside.“Ever since the credit crunch last year home sales have noticeably declined,” says Yun. “Subprime lending accounted for 20 percent of the market, and that suddenly disappeared last August. For brokers, these have been tough times, but given that we have
historically low mortgage rates, I believe we’ll see an increase in sales the second half of the year.”
 Steady Increase in New-Home Sales Yun believes existing home sales will start showing a sustained increase within a few months. High mortgage loan limits should translate into more sales in high-cost markets, while wider access to affordable credit should increase sales activity this summer as pent-up demand begins to be met.  NAR predicts existing-home sales will rise 6.6% to 5.74 million in 2009. Parts of the country that should see improvement include the Northeastern region and oil-patch states of Texas, Oklahoma, Louisiana, and Arkansas.

Weak home sales related to jumbo-loan problems depressed home prices in the first half of this year. But Yun expects steady liquidity improvements in this conforming market will help prices recover during the second half of 2008. The aggregate existing-home price is expected to decrease slightly to a median of $215,800 for 2008 before increasing 3.7% to $223,800 in 2009, according to NAR estimates. 

New-home sales will decrease 25.7% to 576,000 this year before rising 4.6% to 602,000 in 2009, projects NAR. Housing starts are expected to fall 26.3% in 2008, then drop another 0.5% in 2009. The median new-home price is projected to dip 3.6% to $238,400 in 2008 before increasing 4% to $247,800 in 2009.

In addition, combined sales of vacation and investment homes declined with the overall market in 2007, while still accounting for a third of all existing- and new-home sales, which is in line with historic norms, according to NAR. Yun attributes the decline to a reduction in discretionary purchases, which is common during periods of uncertainty, and the significant tightening of credit during the second half of 2007.

Move Toward Safer Mortgage Products

Yun anticipates that more people will begin to apply for alternative low-cost, sound mortgage products such as prime conforming loans and FHA government-backed loans. Plus, Congress is likely to pass a temporary home buyer tax credit during the second half of the year, which should further stimulate sales.

The 30-year fixed-rate mortgage should average 5.8% in the second and third quarters of 2008, then increase to an average of 6.3% in 2009,  according to NAR. Some people in the REALTOR® community favor additional interest rate cuts to drive mortgage rates even lower, but Yun cautions that further cuts could fuel inflation.

“Another interest rate cut by the fed does not automatically result in lower mortgage rates and could actually backfire,” he says. “If interest rates are too low, it’s easily possible mortgage rates would rise as lenders compensate for inflationary risk.”

What can you as a broker do to increase business activity? Spread the news about the pent-up demand and call your legislators to encourage them to lift the loan limit on Fannie/Freddie-backed loans. This will help battle the current pessimism about the market and restore home-buyer confidence.

New Rules for Home Sellers.  It’s no surprise to anyone that the California housing market has changed over the past few years.  What is surprising to some are the new “rules of real estate” for home sellers.  To ensure that you make the best of this market, here are a few guidelines to follow:Be Smart About the Price Too many sellers today are pricing their home based on the values of a year or two ago, which is a big  mistake. The first buyers in tend to pay the best price, so you need to have your home priced correctly from the get-go. Hire a real estate agent you trust and listen to their advice about price.  Hire a Home Stager.  Home Stagers are an amazing deal for sellers in today’s market. They go through your home and cut down on clutter, rearrange furniture, repurpose underused rooms, repaint, and sometimes even bring in new pieces all in the effort to make the inside of your home show as best as it can. Consultations tend to be around $200 while a completed effort could cost $1,000 or more. It’s worth it, though, in the increase in offers you’ll receive.Added Incentives.  Given the number of listings on the market, you need to really make yours stand apart from the rest. One quick way to do this to offer extra incentives to prospective buyers and their agents. Try something like paying part of the buyer’s closing costs, or offer buyer’s agents a 4% commission. It will mean more knocks on your door and a better chance of selling quickly.Know Your Options.  If you purchased your home in the past few years, there’s a good chance that you’re upside down in your loan. If you need to sell your home now, learn what your options are by speaking to a real estate professional who specializes in situations like your own.

New Rules for Home Buyers.  It’s no surprise to anyone that the California housing market has changed over the past few years. What is surprising to some are the new “rules of real estate” for home buyers. To ensure that you make the best of this buyer’s market, here are a few guidelines to follow: Maximize the Mortgage Rates.  Right now there are plenty of homes for sale in just about every county in California, but financing will be getting more expensive shortly. It’s true that the Federal Reserve has been cutting interest rates, but fixed mortgages don’t directly follow the Fed; they follow the bond market’s expectations about inflation, which remains a concern. The 30-year fixed is expected to go up a whole percentage point by next year, which could cost you thousands of dollars a year on your mortgage.Don’t Try to Time the Bottom.  Face it: the house you buy today could be worth less next year, which could get you  trying to time the bottom of the market. Don’t! It’s harder than you think. Instead, pace yourself. Find the perfect place to live and drive a hard bargain. Experts suggest you Ignore the seller’s asking price and bid about 5-10% below what comparable homes are selling for. If the seller balks, move on. Remember that if you already own a home you should sell it before you buy a new one.Don’t Go for Cheap, Go for the Neighborhood.  By now you’ve heard of someone who got an amazing deal on a foreclosed property, and you may be wanting the same great deal for yourself. Just keep in mind that foreclosed homes tend to be bunched in areas where people took out loans that they later couldn’t afford - not a recipe for neighborhood stability, and the quality of life could decline further. Instead look at neighborhoods you like with good schools and you’ll end up with a better investment for the future.