Fannie Mae and Freddie Mac buy mortgages which means that they guarantee them. Without the backing of Fannie and Freddie, mortgage lenders have to find other investors to sell their mortgage loans to and those investors charge more so interest rates are higher. Fannie and Freddie backed mortgages are called conforming; the others are called jumbo. The limit on a conforming mortgage is $417,000 but that is about to change.
There’s also an intermediate level which is a special allowance for higher cost areas like Bergen County. Such mortage loans are at $417,000 – $625,000 with moderately higher interest rates than conforming loans. This is a super conforming loan but marketing folks have coined the phrases Jumbo and Super Jumbo. You’ll see a Jumbo Mortgage at $417-625,000 and Super Jumbo above $625,000.
OK, now you should have a good basic idea of how things work. Here’s where it gets interesting:
Fannie Mae and Freddie Mac are increasing the conforming mortgage loan limits to $729,750 on May 4th. This came about due to the economic stimulus package which was signed into law on February 17th. Wells Fargo will start taking applications for these loans on Monday, April 27th and I’m sure other banks will begin before May 4th too.
New Jersey MLS data shows that the 2008 average sales price for a single family home in Bergen County was $570,217. Even with a 20% down payment, this put a buyer into jumbo loan territory. In several towns it was often impossible for many buyers to qualify and is part of the reason that upper mid range homes have had such a hard time.
In the upper mid range market, it’s really been tough due to the restrictions on conforming loans. Loosening up lending for these homes creates more buyers for sellers. For real estate in Bergen County this is huge. Bergen County is the 18th most affluent county in the US; many of our towns have been severely impacted by the $417,000 limit and even $625,000 didn’t quite work.
For example, Tenafly had an average sales price last year of $915,581, Old Tappan was $1,147,159 and Woodcliff Lake was $838,309 plus many other Bergen County towns have scores of homes that will benefit. If you are a home buyer who’s looking at $850,000 homes, think of how this will help you! You won’t have to pay a point and your interest rate just dropped.
Think of the impact this will have on real estate in Bergen County and across the United States. Buying a home is never an isolated transaction. Real estate is a chain of events – there are homes sold above and below your own transaction so anything that happens in one price range affects it all. This is going to have quite an impact.
Fannie Mae and Freddie Mac allow our mortgage system to exist and move forward. As a result, I will keep you updated on this works out and any other future changes. If you have questions call me at 201-741-8490.