President Bush on Wednesday signed H.R. 5140, the Economic Stimulus Act of 2008, making official a temporary boost to both conforming and FHA loan limits. The new law boosts the GSE conforming limit to as much as $729,750 through the end of this year, and also raises FHA lending limits to the same level for high-cost areas. "I know many Americans are worried about meeting their mortgages," President Bush said prior to signing the bill. "My administration is working to address this problem." Bush cited HOPE NOW and the recently announced Project Lifeline initiative as examples of ongoing work by the administration to address the housing crisis. A White House-produced fact sheet covering the new growth package is available here. The U.S. Department of Housing and Urban Development now has 30 days to publish a database of house prices that will be essential in determining which markets get access to the new 'jumbo conforming' or 'expanded FHA' loan products. Of course, that could prove to be bit of a problem in and of itself, given that HUD doesn't currently independently gather or otherwise publish home price data. Bankrate's Holden Lewis was on this right from the start; he and I had chatted briefly on the matter when Congress first passed the bill:
The Office of Federal Housing Enterprise Oversight, or OFHEO, compiles periodic indexes of home prices. Fannie Mae and Freddie Mac use the OFHEO data each November to update the next year's conforming limit. The Federal Housing Finance Board and the National Association of Realtors both collect and publish home prices. The FHA takes information from both entities to calculate the FHA limits for each metro area. Congress could have pegged the conforming and FHA limits to data collected by OFHEO, the Federal Housing Finance Board or the Realtors. But it didn't. Instead, the law says: "The secretary of Housing and Urban Development shall publish the median house prices and mortgage principal obligation limits ... for all areas as soon as practicable." The law gives HUD 30 days to publish the database of house prices. The simplest solution would be for HUD to use the same house price information it uses to calculate FHA loan limits. But a HUD spokesman says: "We have not yet determined if the same data will be used to make the new calculations." That leaves lenders in the dark until HUD makes a decision.
While price designations aren't yet known, a few industry sources close to the process have suggested that the new conforming limits won't be as broadly applied as many might expect; just 15 counties in California might be designated as eligible for the loan limit increase, for example. That's not the only grey area out there, of course -- there's also the as-of-yet unclear issue of TBA trading in the secondary market that will need to be settled, something HW has covered often recently. (The unconfirmed word from our sources today is still that SIFMA wants to keep the new 'jumbo conforming' loans out of TBA pools.) It's also unclear exactly how the GSEs will price the newly-conforming loans, given that neither Fannie nor Freddie have experience underwriting within the jumbo mortgage market. Similarly, it isn't exactly clear what the initial underwriting criteria will be, although most expect it to at least sit close to existing 'traditional conforming' guidelines -- if not ending up more restrictive. "OFHEO has already gone on record saying that jumbo loans are more risky, so I wouldn't be surprised if the underwriting guidelines end up being tighter than what you'd see for usual conforming products," said one executive at a large lender, who asked not to be identified.