New home loan changes bring no relief Carolyn Said, Staff Writer San Francisco Chronicle Sunday, April 13, 2008 The powers that be have hustled in recent months, trying to make it easier and cheaper to get a mortgage. But despite the Federal Reserve slashing interest rates and Congress raising limits for conforming loans, the home-lending system is still in a logjam. Right now, borrowers are still getting the short end of the stick, said Rob Chrisman, director of capital markets at Residential Pacific Mortgage in Walnut Creek. If anything, mortgages are harder to get and - except for traditional conforming loans to highly qualified borrowers - more expensive. The mortgage market has been locked up since last August and is still as locked up today as it was Sept. 1, if not worse, said Guy Cecala, publisher of Inside Mortgage Finance in Bethesda, Md. This is clearly the worst mortgage market environment we've seen since the Depression. In the wake of the subprime meltdown, investors worldwide lost their appetites for investing in mortgage-backed securities. Because almost three quarters of all mortgages get sold as securities, shutting off that money supply line has had a dramatic impact. Lenders are very cautious about writing loans because they don't want to risk being stuck with them, unable to bundle them up and sell them as securities. Just ask the mortgage brokers. Ever since word leaked that Congress would redefine conforming loans in high-cost areas to go as high as $729,750, brokers were salivating at the idea of a potential gold mine of homeowners rushing to refinance. They hoped the new conforming jumbos or jumbo lights - loans between the old $417,000 limit and the new $729,750 cap - would carry favorable interest rates. I have a pipeline filled with people who can't (refinance) because these ... jumbo lights are useless, Marc Savoy, a mortgage broker with San Francisco Pacific Mortgage Consultants, wrote in an e-mail. The qualifying guidelines are onerous (i.e., income, credit and equity) and the rates are up toward 7 percent. Who's that going to help? Not many people. Or ask the borrowers themselves. An Oakland woman, who asked not to be identified because she wants to keep her financial affairs private, wanted to refinance an adjustable-rate mortgage on her $1.2 million house purchased four years ago. She and her husband have excellent credit and incomes, have 30 percent equity in the home, and are willing to pay down the current loan enough to increase equity to 40 percent. They sound like the kind of borrowers any bank would welcome with open arms. And, in fact, they can easily qualify for one of the new jumbo light loans - but they're being quoted interest rates at a pricey 7.5 to 8.5 percent. What that tells me is (banks) just don't want to lend, she said. What's really upsetting is that Congress' intent was to give some relief and to stimulate refinancing and the housing market in areas where housing prices are extraordinarily high, like the Bay Area. (The new conforming limits) are having absolutely no effect whatsoever. $417,00 is still the conforming loan limit. It's a travesty. To be sure, the jumbo lights are still new products. Lenders only started offering them two or three weeks ago. Fannie Mae and Freddie Mac only began buying them at the beginning of this month. Cecala at Inside Mortgage Finance said he thinks the jumbo lights will take a while to hit their stride. The markets move so slowly, he said. If we find in three or four months that they look like they are performing well and not (being paid) early and there is nothing squirrelly, (investors) will start buying more. It could be fall by the time investors become comfortable with these type of loans trading as securities. For that reason, he predicts that Congress will extend the new loan limits past their planned Dec. 31 expiration date. The three tiers Essentially, now there are three tiers of mortgages available in the wake of the stimulus package's temporary change to conforming loan limits.