Saturday, February 9, 2008

Economic Stimulus Plan ?

The plan congress has passed will give an injection of $600 cash to taxpaying individuals and $1200 to married couples. The plan will also temporarily increase conventional loan limits from $417,000 to $729,750 until the end of 2008. For those homeowner's with Jumbo loans this is great news. This will enable loans that are currently in Jumbo status to be refinanced at a lower interest rate. Or will it? Lenders are still hesitant to make residential loans of that size and have enlisted extremely stringent guidelines and underwriting practices in order to offset their risk. The largest obstacle is LTV (loan to value). Since the subprime mess began to heat up it has become impossible to find lenders willing to fund loans in excess of 95% of the home's value. To further complicate matters, even those with equity find themselves between a rock and a hard place (obigatory geological reference) due to decreasing property values. There is a home in my neighborhood that recently appraised for nearly $200,000 less than it did 2 years ago. In that scenario, the homeowner has lost all equity and will not qualify to refinance their jumbo loan into a conforming loan with the increased conventional loan limit. I think there are many people in this situation who purchased homes with little or no money down with Jumbo loans and have since experienced a decrease in their homes value. It will be interesting to see if lenders are forced to loosen up their guidelines in order to reap the windfall of profits from the hundreds of thousands of refinance opportunities to offset the huge losses incurred since the subprime mess began. Stay tuned.

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