Jumbo Mortgage Cut Makes Little Impact

By Kevin Chiu

Reduced loan limits on jumbo mortgages cut Saturday had little immediate affect on home purchases or mortgage financing, and little real impact is expected by many money tree lenders. Jumbo mortgages are being offered by lenders, despite the loss in government purchases.

The Federal Housing Administration (FHA) cut mortgage limits on loans it purchases in the highest metropolitan areas of the U.S. on jumbo loans, while leaving limits unchanged in the majority of the country. The rates were reduced as required in the Housing and Economic Act of 2008.

Lobbyists for Realtors, banks and home builders worked to pressure Congress to extend the limits for jumbo mortgages longer, but were met with little luck.

The financial crisis that started in 2007 made it tough for mortgage borrowers to obtain financing on homes exceeding the limits at the start of the financial crisis, but in 2008 Congress raised conforming limits in higher cost housing markets. The mortgage limit for areas where housing costs are low remains unchanged at $271,050. The new “ceiling” loan limit for jumbo mortgages was reduced Saturday to $625,500 from $729,750.

Mortgage rates on conventional loans plummeted to new record lows last week as the Fed announced additional purchases of mortgage backed securities, which is nearly equal to another cut in the prime rate for mortgage borrowers. Jumbo mortgages followed suit, but are roughly one-half of a percent to 1% higher than conforming loan amounts.

rates plummet

The FHA loan limits vary but all are within a range of $271,050 to $625,500 for single family homes. Two U.S. states, Alaska and Hawaii and two U.S. territories, Guam and the Virgin Islands are expecting slightly higher loan limits to be set.

Jumbo loans only provide a small percentage of mortgage financing compared to the U.S. $10-Trillion mortgage market, including areas in California, Connecticut, Maryland, New York and Florida.

The change in jumbo mortgage rates will affect just 669 U.S. counties out of a total of 3,234, where the FHA insures home loans. Banks and mortgage companies which provide lending at a slightly higher cost than the FHA has are expected to provide the majority of jumbo mortgages.