Wells Fargo Lowers Conforming Loan Limits

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The deadline for ending temporarily higher loan limits at Fannie Mae, Freddie Mac and the FHA is October 1st, but they are effectively ended now.

A Wells Fargo spokesman confirms, "August 15th was the deadline for applications and rate locks for FHA and conventional conforming loans with balances above the limits we expect will be in place after September 30th."

The loan limits were raised by Congress in 2008 temporarily from $417,000 to $729,000 in the highest priced markets in order to help bring much-needed liquidity to the mortgage market after the sub-prime meltdown that sent investors fleeing. There has been heavy lobbying by the Realtors, mortgage bankers and home builders to extend the limits, but so far to no avail.

Even though the rule goes into effect on October 1st, all loans have to be funded, sold and shipped to the GSE's by then. Refi volume has been so high lately that it can take 45 days to do a loan, so lenders have to cut off in time.

What does that mean on the street? A check of Wells Fargo's website shows it offering the 30-yr fixed conforming at 4.25 percent, and jumbos at 4.625 percent. Obviously the rate changes will affect only the highest priced markets, largely on the coasts. This from mortgage expert Mark Hanson:

"The realists note that within certain mid-to-high end communities, which can underpin an entire county's economy, the majority of houses and borrowers could be impacted, again weakening the macro economic foundation.

Bottom line: The loss of high leverage GSE and FHA loans to $729k will negatively impact mid-to-high end housing. To what extent, I am not sure yet. However, I don't think it will be trivial. But what I am sure of is that mid-to-high end housing is the segment most at-risk for step-down in sales volume and prices...just look at CA house sales over $500 in July for an example of how volatile this market segment is."

Wells Fargo is the first to confirm the change, but other banks either will or have followed suit. They have to, simply because of the timing.

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