Can you see through MUD? Economic Stimulus Package Update- Conforming Loan Limits

Can you see through MUD? Economic Stimulus Package Update- Conforming Loan Limits

life_ring_house.jpgThere has been a lot of talk surrounding the rise in the conforming loan limits to help spur the residential real estate market.  As I’m sure you’ve all heard the congress finished off the economic stimulus package yesterday and sent it to the President with the $729,750 number intact.  President Bush has already come out and said he is pleased with the bill and will sign it into law sometime next week. 


Here is the section of the bill relating to the conforming limit increase:


One thing that hadn’t been clear to me was how they were going to break this down geographically.  They said based everything off of “area” median home prices.   In reading the final bill it says:


“125 percent of the area median price for a residence of the applicable size, but in no case to exceed 175 percent of the limitation for 2008 determined under such section 302(b)(2) for a residence of the applicable size.”


So, the median area home price for the Bay Area last year from one article I saw was $810k.  That number seems high, but say it was $600k.  125% of that is still $750k.  175% of the limitation for 2008 (417k) is where they get the $729,750.  So, most everything in the Bay Area is going to be capped at $729,750. 


So, how are they determining what “area” means?  Is it county? city? zip?  Here is what the bill says:


“shall be the areas and area median prices used by the Secretary of Housing and Urban Development in determining the applicable limits under section 202 of this title.”


Sec 202 still doesn’t really define “area” but currently HUD appears to use MSAs and County for determining area in regards to the previous FHA lending limits.  I’m sure more info will come out shortly to clarify this.  Or if you have a better understanding of this let me know.


So, when does this go into effect? 


It can go into effect as soon as the President signs the bill, but Fannie/Freddie may wait for HUD to publish the median house prices.  According to the bill they are to publish this “as soon as practicable” but no later than 30 days from enactment.  I’m sure they have this info handy so I can’t imagine waiting 30 days to get this going.  We’ll likely get some guidance from the GSE’s shortly. 


Section 202 says:


(c) Publication of Area Median Prices and Loan Limits- The Secretary of Housing and Urban Development shall publish the median house prices and mortgage principal obligation limits, as revised pursuant to this section, for all areas as soon as practicable, but in no case more than 30 days after the date of the enactment of this Act. With respect to existing areas for which the Secretary has not established area median prices before such date of enactment, the Secretary may rely on existing commercial data in determining area median prices and calculating such revised principal obligation limits.


Hopefully the mud is now a lighter shade of brown now.

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