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Fri Feb 29th 13:35 PM | Rating: 0 0
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Jumbo Mortgage Risk Will Topple the Teetering GSEs

Mr. Blake seems know almost nothing about the secondary mortgage market and Fannie and Freddie. First, the $417,000 ceiling is not a line in the sand that cannot be crossed, but, in fact, is a limit that is determined annually by a compilation of national mortgage data. This limit has been increasing steadily for at least the last 30 years. The people who benefit most from conforming limits are home owners who live in low cost housing markets like Kansas, and those who benefits least live in California. The finance companies love the fact that they can charge an extra 75 to 150 basis points of interest for non conforming loans. These same finance companies have been trying for years to get rid of Fannie and Freddie so that they can charge higher interest rates on smaller loans as well.
Finally, to say that raising the conforming loan amount is a great risk is simply not true. The people who will benefit most from this will be people who live in high cost housing markets because they will be able to obtain mortgages with lower interest rates, which will reduce the overall profit of mortgage finance companies. Mr. Blake gives some fuzzy logic which can be refuted by the following simple example: If you bought a home 20 years ago in a low cost housing market, chances are that the house today is worth close to what you paid for it. If you bought a house in a high cost housing market, such as Southern California, the house value has probably gone up substantially. Which was the safer risk; a house that never appreciates with a conforming loan, or one with strong equity growth, and a non conforming loan. My parents bought a home in California in 1961, for $11,000. This same unimproved house sold in 2005 for $470,000.

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