WeeklyBasis 10/23/08: Rates Rebound, Deadlines for $729k Conforming Loans

Fixed and ARM rates for loans up to $729k are down .375% this week rebounding from a spike last week. Rates on loans above $729k are consistent because they continue to be priced more on lenders’ willingness to lend than on market forces.

Rates got a boost early this week when it was reported that bond king PIMCO raised its mortgage backed securities position to a seven year high of 79% as of the end of 3Q2008, replacing Treasury bond holdings with the MBS holdings. This is presumably because of the fact that MBS now have government backing since the takeover of Fannie and Freddie. When MBS prices rally like they did this week, yields (or rates) drop.

Now that we’re late in the week (yes WeeklyBasis is very late this week), MBS are trading lower again following a three day rally. Still rates are holding at much improved levels relative to last week, and with the stock market bouncing all over the place, it’s hard to say what is going to happen. But job losses mount, Goldman Sachs announced a 10% workforce cut and more cuts from Wall Street firms are expected to continue mounting. Often when this happens and stocks sell off, bonds rise and rates drop.

We will find out what the 2009 conforming limits will be on November 7. There are two recent examples to draw from to predict the outcome. Under the Economic Stimulus Act passed February 13, 2008, loan limits for high-cost areas were set at 125 percent of local house price medians and the maximum high-cost limit was 175 percent of the $417k national conforming limit ($729,750 in the continental U.S.). Under the Housing & Economic Recovery Act passed June 30, 2008, the high-cost area loan limits are 115 percent of local price medians up to a maximum of 150 percent of the national limit. In 2009, if the national limit remains at $417,000 for one-unit properties, the maximum limit in high-cost areas would be $625,500.

The real question is if the regional fracturing will get any more specific so that high-cost areas like San Francisco might get a higher limit. But it doesn’t seem likely at this point. Lenders are slowly cutting off acceptance of $729k loans so they can close out pipelines by December 31. The latest that any competitive rate products will be available for these loan limits is December 15.

Conforming ($200,000 – $417,000) – NO POINTS
30 Year: 6.375% (6.48% APR)
15 Year: 6.0% (6.12% APR)
5/1 ARM: 6.375% (6.47% APR)—See Jumbos for Lower Rates

Super-Conforming ($417,001 to $729,750 cap by county) – NO POINTS
30 Year: 6.625% (6.735%)

Jumbo ($729,751 – $1,500,000) – NO POINTS
30 Year: 7.0% (7.025% APR)
7/1 ARM: 6.25% (6.21% APR)
5/1 ARM: 6.0 % (6.11% APR)