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Jumbo mortgage deadline loomsBy Holden Lewis November 18, 2008 Some mortgage borrowers are about to get squeezed by the shrinking of something called the jumbo conforming limit. In the country's priciest housing markets, including Los Angeles, San Francisco and Washington, D.C., this year-end change means that borrowers need to act fast if they want to get a home loan between $625,500 and $729,750. A similar change affects other areas, too, but not necessarily with the same dollar amounts. The change in the jumbo conforming limit affects purchasers as well as refinancers. Time is of the essence because it takes a few weeks not only to process a loan from application to closing, but to sell it on the secondary market after closing. At this late date, it's better to skip the middleman and apply directly with a lender instead of through a mortgage broker. Some lenders want these loans to be closed by mid-December or even earlier. Bank of America's deadline was Nov. 13 for a rate lock under the 2008 loan limits. Citi will accept 15-day rate locks in Citi's bank branches as late as Dec. 9, meaning they have to close by Dec 24. And some lenders will go later than that. Matt Hackett, underwriting manager for Equity Now, a New York-based direct mortgage lender that does business in 17 states, says his company can close jumbo conforming loans through Dec. 31. A spokesman for Chase says Chase will accept rate locks all the way to Dec. 31, for loan closings early next year. Told that this sounded hard to believe, the spokesman insists it is true. Why conforming is good Until this year, mortgages could be divided into two categories, defined by loan amount. Mortgages for $417,000 or less were within the conforming limit, meaning that they potentially were eligible for sale to Fannie Mae or Freddie Mac. Anything over $417,000 was a jumbo loan, and ineligible for sale to Fannie or Freddie. The distinction matters because jumbo loans have higher rates. Since the credit crunch began 15 months ago, jumbo rates often have been more than a full percentage point higher than conforming rates. As part of the economic stimulus package this year, Congress adopted a new, in-between category of mortgage for a few dozen counties where houses are most expensive. It's called the jumbo conforming loan, and the limit varies by county. In the priciest places, such as Los Angeles, the jumbo conforming limit was raised temporarily to the maximum possible of $729,750. In other counties, where house prices are high but not as high as in L.A., the jumbo conforming limit is less. In Boston, it's $523,750; in Philadelphia, it's $420,000. And in most counties, where houses are more reasonably priced, there are no jumbo conforming loans, and the line between conforming and jumbo remains $417,000. In short, there are three categories of mortgages where there used to be two. In addition to the conforming and jumbo, there's now that chimera known as jumbo conforming. To confuse things even more, the jumbo conforming limit varies by county, depending on house prices -- and in most counties, there are no jumbo conforming loans. Changes coming in 2009 Here's another complication: The jumbo conforming limits will go down substantially in some counties at the beginning of 2009. Take Los Angeles as an example. In 2008, the jumbo conforming limit there is $729,750. On Jan. 1, the limit drops to $625,500. If someone in L.A. wants a $700,000 mortgage -- either to buy a home or to refinance an existing loan -- it's a jumbo conforming loan if closed in 2008, and will be a higher-rate jumbo loan if closed in 2009. (The map of FHA loan limits currently on Bankrate.com contains the 2008 limits. It will be updated with the 2009 limits in mid-December.) For borrowers in the above situation, it's important to act now because of the time it takes to process and sell a mortgage on the secondary market. Banks want to get these loans closed with plenty of time -- at least two weeks, preferably -- to sell them on the anemic secondary market. Many lenders set their application and closing deadlines long before Nov. 7, when the Federal Housing Finance Agency announced the 2009 reduced jumbo conforming limits. HSBC's application deadline for brokered loans was Oct. 24. Other banks told brokers to get their applications and loan locks in by Nov. 15. Some banks want the loans to be closed before Dec. 1, and the boldest by Dec. 15. Once the loan is closed, it won't switch categories. A conforming jumbo closed in 2008 remains a conforming jumbo in 2009. It won't suddenly become a jumbo loan with a higher rate. In addition to Los Angeles, some of the most populated metro areas in the country will see an identical drop in the conforming limit, from $729,750 to $625,500: the San Francisco Bay Area, Silicon Valley, the District of Columbia and its Maryland and Virginia suburbs, and greater New York City and Long Island. The same will happen in a few exclusive resort areas, such as Nantucket County, Mass., and Pitkin County, Colo. Other areas will see declines in the limit, but not as precipitous. Naples, Fla., for example, will go from $531,250 to $448,500. |
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