what is the current conforming limit on loans? I've read on 2 different sites that it has increased from

Asked by Olivia Pritchett, Illinois Wed May 13, 2009

41700 to either 477,000 or 562,500. Can someone clarify please? thanks.

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Steven Ornel…, Agent, Fremont, CA
Wed May 13, 2009
Hi Olivia, right now, there are functionally only two conforming "conventional" loan amounts:

“Classic” Conforming Conventional to 417K
High Balance/Jumbo Conforming Conventional to $729K (max subject to state/county)

You can check these different levels here (enter state/county):
https://entp.hud.gov/idapp/html/hicostlook.cfm

Even though the government redefined "conforming", that's not to say that the higher levels have been welcomed with open arms by lenders, primarily because Mortgage Backed Securities investors are not particularly fond of them. There are a number of reasons that will keep the interest rate spread between the "classical conforming" and "jumbo conforming" rates:

1) The government is only guaranteeing the base 417K conforming loan limits, so investors of mortgage-backed securities (MBS) are focusing their dollars there. As a shell-shocked" investor worried about stability you are going to stick with a guaranteed investment - especially with the economy in its current state and unemployment on the rise (unemployed people stop making mortgage payments).

2) The FED purchases of MBS is focusing on the base conforming levels, specifically 4.0% & 4.5% MBS Coupon bonds, which typically encompass 4.25-5.125% mortgages. This helps to keep the interest rates low for conforming loans.

3) With weak demand by investors for non-guaranteed Jumbo MBS, interest rates must be higher to attract investors.

For these three primary reasons (FED guarantee, FED purchase focus, elevated risk vs. reward pricing for jumbos) I really don't see "conforming jumbo" pricing improving significantly throughout 2009, even though the Gov has redefined conforming.

You may want to review these two docs to get a better feel for how mortgage rates are determined:
http://docs.Steven-Anthony.com/SAR-HowMortgageRatesAreDeterm…
http://docs.Steven-Anthony.com/RateShopping-DoItRight.pdf

Best, Steve
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