Late last week both the U.S. House of Representatives and Senate approved an economic stimulus package that, amongst other things, will increase the maximum loan amount that Fannie Mae and Freddie Mac (collectively known as the “GSE’s”), and FHA/VA will accept. Officially, this increase is considered “temporary” for loans originated between July 1, 2007 and December 31, 2008, but some observers think that the government will be pressured to extend this increased cap indefinitely until the housing market shows signs of stability.

This is obviously a tremendous development for our clients and business, especially in the short run. Not only will it help many previously 'jumbo' borrowers who now can get a loan under the new limits, it could serve to stabilize a very volatile secondary mortgage market and, in turn, borrower pricing and guidelines.

However, there are many open issues that need to be resolved before Indymac (as well as competitors) can begin pricing and selling loans under these new terms. Resolution on some of these key, and some very technical issues needs to occur before Indymac can price and sell loans to this new execution. None of our major competitors has announced pricing for loans under the new limits either, as they are facing the same challenges:

• What exactly will the new limits be? Many of you have no doubt heard that the new GSE limit will be $729,950. Unlike previous limits, this new amount will not be a nationwide standard. Instead, the new limit will be based on prevailing house prices in individual metropolitan areas. $729,950 will likely be the new limit in Los Angeles, San Francisco, and other higher cost areas. Other more moderately priced housing markets will have differing limits somewhere between the current $417,000 and the $729,950 max, and some affordable markets may actually see the limit stay the same.
  • For FHA, the specific new limits are also in limbo. The minimum loan amount ceiling will increase from $200,160 to $271,050, and the maximum loan amount ceiling will increase from $362,750 to $729,950, again depending on housing prices in individual geographic regions.
• How will the loans be sold in the secondary market/what price will investors pay for these loans? (This in turn determines the rate we can offer our clients). There are numerous questions still outstanding here, such as: What fees will the GSE’s charge to insure these loans (know as a “guarantee fee”)? Will investors pay the same price for these loans as loans under the old limit?
• What loans will the GSE’s accept? What will their minimum FICOs / Max LTVs be?
• Will these loans be processed through the GSE’s respective underwriting system (FNMA’s desktop underwriter and Freddie Mac’s loan prospector, respectively?) or some alternative mechanism? The GSE's are telling us that they're facing system challenges of their own in adopting these new limits. They're not used to having a complex limit scheme based on geographic region - they need to change some of their systems and processes just like we will.