'Jumbo-conforming' loan limits rise in 4 counties Heather Larson of Highland was eagerly anticipating the federal government's moves to make big mortgages more available and cheaper in high-cost areas of the country by raising limits for loans backed by Fannie Mae and Freddie Mac.
By raising these loan limits, the government hopes to help more homeowners in expensive housing areas to refinance at interest rates that are lower than those for jumbo loans, and jumpstart the housing market. Rates on jumbo mortgages are about a percentage point higher than rates on conforming loans, and the spread between those rates is widening because of the subprime lending crisis.
Up until this month, a mortgage of $417,000 or less was a conforming loan, and a mortgage greater than that was a jumbo loan. But now, instead of having one conforming limit across the nation, there is a $417,000 conforming limit in most parts of the nation and varying higher "jumbo-conforming" limits in certain expensive housing areas.
Unfortunately for Larson, Utah County isn't deemed an expensive housing area by the federal government -- despite a preponderance of luxury homes in Alpine, Highland and in certain neighborhoods -- and therefore didn't qualify for higher loan limits.
The new loan limits, which are temporary and apply only to mortgages originated from the beginning of last July through the end of this year, are part of the economic stimulus package signed by President Bush last month to revive the housing market.
As far as Larson is concerned, she said the stimulus plan doesn't help her refinance her $520,000 jumbo mortgage in Highland more cheaply because loan limits for Utah County remained unchanged at $417,000. That means homeowners in Utah County can only borrow up to the $417,000 limit.
And to her dismay, Salt Lake County, just a few miles north of Highland, is one of several areas in the country identified by the U.S. Department of Housing and Urban Development as being eligible for the highest loan limit -- $729,750. Those in Tooele and Summit counties can also borrow up to the $729,750 loan limit, while Wasatch County is eligible for a loan cap of $431,250.
"That means, if I had lived off the next exit up in Draper, I could have refinanced my $520,000 mortgage at an interest rate of around 5.8 percent. Instead, here in Highland, my rate would fall under the current jumbo rates of 7 percent or more. That's a difference of several hundred dollars a month in interest payments," Larson said.
The Office of Federal Housing Enterprise Oversight, which oversees government-sponsored mortgage companies Fannie Mae and Freddie Mac, raised loan limits in the four counties earlier this month from $417,000. With the exception of those four counties, loan limits for the rest of Utah remained unchanged at $417,000.
"It's just not fair that Utah County is excluded," she said. "We live in Highland, which many consider to be an expensive part of Utah County. So how can it be exempt from the increase in jumbo-conforming limits?"
Why is Utah County excluded?
That's partly because Utah County's median sales prices are too low due to a preponderance of affordable student housing and cheap condominiums. And the new loan limits are a function of median prices -- meaning half of the homes sold for more, the other half for less -- as estimated by HUD.
To calculate the median sales price, the Federal Housing Administration used government and commercial data for metropolitan statistical areas and regions lying outside metropolitan areas. If multiple counties are involved in a single area, the FHA used the county with the highest median sales price.
"The median home price in Utah County is typically much lower due to the larger number of affordable student housing, and in the past few years, there's been more sales activity in lower-priced homes than high-end homes," said Sterling Thomas, vice president of Utah Housing Corp. "For every large home that sells in say, Highland, there are two or three cheap kitty condos that are sold, which drops the median price for the entire county."
Further complicating matters is the way the federal government determines which counties are bound together to make up a metropolitan statistical area, he said.
"The Feds lumped Salt Lake, Tooele and Summit counties together as one metropolitan statistical area, even though they are not in one contiguous area. I don't know why they did it that way. Because Park City, which is probably the largest, most-expensive housing area in Utah, is in the Salt Lake metropolitan statistical area, that brought up the median sales price for all three counties," Thomas said.
New 'jumbo-conforming' loans
As of last Friday, local mortgage lenders like Axiom Financial began funding jumbo-conforming loans at the new limits in Salt Lake, Tooele and Summit counties.
Under the new loan limits, the rate on a 30-year fixed-rate jumbo-conforming loan of up to $729,750 was between 6.75 percent and 7 percent as of Wednesday afternoon. The rate on regular jumbo loans -- or loans above $417,000 or above $729,750, depending on where the new loan limits take effect -- were between 7.75 percent and 8 percent, said Melissa Wright, president of Axiom in Salt Lake City.
"That's really good news for homeowners in Salt Lake, Tooele and Summit. Any increase in loan limits would provide more financing options for people and help bring confidence back," she said.
But new jumbo-conforming loan rates are still 1 percent higher than conforming loans, Wright said. The rate on conforming loans, or loans below $417,000, was between 5.75 percent and 6 percent as of Wednesday afternoon.
"The new loan limits have only been on the market for a week or two. The spread between the rates charged for standard conforming and jumbo-conforming loans could narrow in the coming weeks, depending on whether demand picks up," Wright said.
Recourse for Utah County homeowners?
For now, homeowners in Highland and Alpine will likely have little or no recourse until properties in those zip codes are included in the Salt Lake, Summit and Tooele metropolitan statistical area, Wright said.
But homeowners like Larson can try their luck appealing Utah County's loan limits to HUD. They have until April 6 to make their appeal to the federal government.
Utah County Association of Realtors CEO Taylor Oldroyd said he has met with Congressman Chris Cannon and wants to know how the federal government determined lending limits for Utah County.
"We want to know if there's any way we can increase those loan limits for Utah County. There are obviously areas in Lehi, Alpine, Highland, and almost every city in Utah County has some neighborhoods where higher loan limits will make a big difference," Oldroyd said.
But many mortgage lenders aren't too optimistic.
"It's one of those challenging situations. The homeowners can go to their state or federal legislators and the FHA to appeal the limits. But I'm not optimistic that the FHA would change or modify their guidelines for a small area in the country. Generally, they feel that if they can affect 60 percent to 70 percent of homes nationwide, that's a great outcome. The problem is that it leaves out homeowners like Larson," said Kelly Ercanbrack, a broker with Coldwell Banker in Orem.
John Norman, executive director of the Utah Mortgage Lenders Association, agreed.
"It will be a Herculean miracle to get loan limits in Utah County changed," Norman said. "Highland and Alpine may have been left out of the loop, but if you're getting a home at above the $417,000 price range, you've got to have some pretty good income and credit to qualify for the loan."
The new jumbo-conforming loan limits are aimed more at helping homeowners in California, Nevada, Florida and Arizona, which have been hardest hit by the subprime lending meltdown and housing slump, said Dan Christensen, president of Coldwell Banker Residential Brokerage in Salt Lake City.
"Utah isn't as badly affected as those states. The interest rates in jumbo loans in those areas are so high that people aren't buying homes, and that's exacerbating the situation," he said.
New FHA loan limits
Separately, HUD has also raised the limit on FHA-backed loans or loans typically used by first-time homebuyers, to $729,750 in Salt Lake, Tooele and Summit counties, and to $431,250 in Wasatch county. The FHA loan limits in other counties also rose, but by varying amounts.
In Utah County, the FHA loan limit was raised to $323,750 from $232,305, while in Davis County, the FHA loan limit rose to $397,500, and in Millard, Garfield and Paiute counties, the loan limits rose to $271,050. The loan limits are effective for mortgages originated after March 6 through the end of the year.
"At least the FHA loan limits are much higher now to cover the price of starter homes, compared with a year ago," Thomas said.
FHA loans went out of fashion as an option for people with poor credit in recent years -- thanks to the explosion in subprime mortgages -- but are making a comeback now that subprime loans have dried up. But FHA lending requirements are stricter than that of subprime lenders, requiring credit scores of at least 680, among other terms.
"These FHA loan increases will provide opportunities for first-time home buyers and for move-up buyers looking to upgrade to a larger home, the chance to afford and purchase a home that they would not necessarily have been able to purchase before the enactment of the Economic Stimulus Act," Christensen said. "For example, we may see buyers who purchased their home in the $200,000 price range or lower upgrade to a new home in a higher housing bracket with an FHA loan because of the lower downpayment, lower interest rate and more-flexible underwriting criteria."
Ryan Kirkham, first vice president of the Salt Lake Board of Realtors, doesn't expect the new FHA loan limits of $729,750 in Salt Lake, Tooele and Summit counties to stimulate more high-end home sales.
"Raising the FHA loan limits could help people wanting to get loans for homes in the $400,000 or less price-range," Kirkham said. "But we don't typically see a lot of people getting conventional or FHA loans for $600,000 to $800,000 homes because people buying such expensive homes usually already have the money to pay down at least half the price."
• Grace Leong can be reached at 344-2910 or email@example.com
The National Association of Realtors said that the more independent documented data on home sales prices submitted, the more likely HUD will grant the appeal. For areas where HUD grants an appeal, the change will affect both the jumbo-conforming loans and FHA-backed loans.
According to the National Realtors' Web site, each request for appeals must contain sufficient housing sales-price data, listing one-family properties sold in an area, to represent home prices throughout 2007. All such requests will be handled the FHA's Santa Ana Homeownership Center:
U.S. Department of Housing and Urban Development Santa Ana Homeownership Center
Santa Ana Federal Building
34 Civic Center Plaza, Room 7015
Santa Ana, CA 92701-4003
Attn: Program Support/Loan Limits
Source: National Association of Realtors