Freddie Mac is one of the big players in the secondary mortgage market, buying conforming loans there to add liquidity to the vast home finance system. The current conforming loan limit is $417,000 and anything above that is called jumbo and interest rates at that altitude generally hover as much as 1.00% higher than for the conforming money. A significant disadvantage to homeowners who wish to refinance or buyers looking to bankroll a purchase. But the Economic Stimulus Act of 2008 changed the loan limit and it can now go up to $729,750 in designated expensive areas. The change is good only until the end of this year, but can be extended by Congress.
Since the new legislation was approved Freddie Mac has negotiated with Chase, CitiMortgage, WaMU and Wells Fargo, the fearsome foursome, to purchase loans from them originated in 224 high-priced markets where median home values top the $417,000 ceiling. The firm predicts the volume of the new conforming jumbo mortgages it'll buy will be worth between $10 and $15 billion this year. It also is conducting discussions with other large lenders to do the same with them.
The expected interest rates for these fresh conforming jumbos should be about .50% below the regular jumbos in these markets, but still about .50% higher than for loans under the $417,000 limit. So, they'll fall somewhere right in between the two.
While each lender will determine its own specific loan portfolio, Freddie Mac is committed to buying the following loan products; 15-, 20-, 30- and 40- year fixed-rate programs, 30-year fixed-rate loans with 10-year interest-only period, fully-amortized 5/1 ARMs and 5/1 ARMs with 10-year interest-only time frame. Cash-out refinance up to $100,000 is also available to qualified homeowners.
This certainly will add liquidity to the marketplace and with it comes a more stable lending environment, a critical component that has been shaken badly in the last year or so.