On Monday, Feb 11 President Bush signed the Stimulus Package which included an adjustment to the conforming loan limits. Officially these new limits went into effect July 1, 2007 (not a typo) through December 31, 2008. It is retroactive to allow the lenders to sell a backlog of loans larger than the $417k loan limit that had existed. Clearing this backlog will free up capital and giving the lenders more capital to use for future loans (ie address the liquidity process more effectively).

While the law states that this limit ends at the end of this year, there will be considerable pressure on Congress to extend the limits even if we are not still in a housing downturn or a recession. This is because the old number was the same in all areas of the country. In some areas the average home price is way above this limit causing most loans in the area to be jumbo (higher rates).

So the next question is what is the new limit? The answer is it depends. The law says it will be 125% of the average home price. A number you see in the media is $729,950. That is the likely number in Los Angeles, San Francisco, and other expensive markets (Colorado resort towns). However it will be lower in most markets. And in markets where the average selling price is well below the $417k value, the conforming limit will not change.

This market specific number is causing issues with the lenders because their software systems are used to one static number. Programmers are working furiously to updated these systems so that mortgage brokers can price out a loan correctly. Within 60 days you should see the effects of this law - lower mortgage rates for loans above $417k in select markets. And this should mean more buying activity.

The housing market in the US continues to struggle with most markets declining in price moderately and some markets declining significantly. However Monday President Bush signed into law a stimulus package worth $170B. Today retail sales were reported much higher than expected (0.3% increase instead of the expected 0.4% decline). With world growth slowing slightly, less pressure will be put on continued gas price increases and the US dollar. And while off their lows, interest rates are near their 5 year lows in the US right now. The US Federal Reserve has cut interste rates 2.25% in the last 3 months. Finally, it is an election year in the US which typically drives the economy to outperform. All of these reasons lead to a bottoming of the US economy in the first half of 2008 and a strengthening of the US dollar. Now may be the best time to jump into the US housing market while the dollar is weak and prices are down. This situation may change rapidly over 2008. You don’t want to miss the boat.

Fannie Mae and Freddie Mac are the government sponsored agencies (GSE) that buy all the conforming loans from the various national lenders (loans under $417k and full doc). With the recent issues in the US mortgage industry, these GSEs have made changes that impact borrowers significantly. There are 2 main changes:

1) Historically a borrower buying his primary residence, documenting his income, and getting a loan less than $417k did not have his interest rate impacted by his credit score as long as he had at least a 620 FICO. His rate was still impacted by LTV, the state it was in and other variables. But it was not impacted by his FICO.  This has now changed.

All loans bought by the GSEs will now have their rates adjusted by the FICO score. This means that someone who has a 639 credit may be paying as much as 1.5% higher rate than someone with a 760 credit on the same loan. Last year they would have had the same rate on their primary residence. This is now similar to how rates are computed for jumbo, stated, and investment property loans.

There are exceptions to these increased rates including if the LTV is 70% or less and on some first time home buyer programs. 

2) The second rule now has to do with markets in the US deemed “declining markets”. It went into effect Jan 15, 2008. Any home that is marked on the appraisal as being in a declining market has its loan LTV requirement reduced by 5%. So if a particular loan program allows 100% financing on a given home at a given interest rate and that home is in a declining market, the borrower will get the 100% interest rate pricing but will only be allowed to borrow 95%.

Both of these rule changes will have significant impact on which borrowers are able to afford a particular home. It is now even more important to have buyers contact their mortgage broker earlier in the process to ensure they are able to qualify for the home they were interested in under the new guidelines.

If I can answer any questions on the new guidelines or prequalify a buyer, please give me a call at:

Eddie Hunnell, Mortgage broker

303-495-3421

The service sector saw a much larger than expected slowdown today. Economists generally believe this is forecasting a recession in the US. And that will drive interest rates down further than they have come in the last few months.

 The action data is the Institute of Supply Management Index. It had a reading of 54.4 in december. Any reading above 50.0 forecasts growth in the services sector. Economists has forecast a January reading of 52.5. The actual number came in at 41.9 - considerably lower than forecast and significantly below 50 forecasting a retraction in the service industry.

**mortgage rate assumptions:

• Purchase of a single family home for $500k with a 30% down payment
• Credit Score 760 or higher
• No Loan Origination or Loan Discount Fee - rates lower with discount fees
• Typical Closing costs approximately $2,250

On the positive side, US mortgage rates have slowing been falling for foreign nationals purchasing second homes in the US. A typical rate is 7.35% for a self serve (no documenation) loan. The minimum down payment is typically 25% but possibly higher.

 On the negative side, the US mortgage crisis has caused many lenders to cancel their foreign national loan products. This has reduced the number of loan options by 85%.

If you are considering a purchase in the US or even a remortgage, now is the time to give a US mortgage broker a call. Make sure they are experienced with foreign national loan products as most are not.

 I would be happy to provide you a quote.

Eddie Hunnell

303-495-3421

ehunnell@mindspring.com

Inflation in the Eurozone countries rose to its highest level on record (since Jan 1997) to 3.2% last month from the previous month’s reading of 3.1%. This means it is unlikely for the European Central Bank to lower rates in lock step with the US Federal Reserve. What does this mean for foreign nationals:

• European currencies are likely to rise against the dollar helping European purchasing power in the US.
• European mortgage rates are not likely to fall in the short term.
• US mortgage rates are likely to fall in the short term

In other European economic news, Eurostat reported Eurozone unemployment flat at 7.2% in December.

The Fed lowered its target rate to 3.0% yesterday. This caused banks to lower their Prime rate to 6.0%. As recently as last fall Prime was 8.25% which it had been for several years.

 The government reported yesterday its first view of Q4 2007 GDP. GDP grew 0.6% on Q4 compared to 4.9% in the third quarter.

 Core inflation as measured by the Year over Year PCE was 3.5% in December. This is a concern and may cause future Fed rate increases if it does not come down. However the Fed does expect it to moderate over 2008.

Workers filing unemployment claims increased to its highest level since Oct 05 last week to a level of 375,000. The most recent unemployment figure was reported a few weeks ago to be 5.0%. This is up about 0.6% from its low last year.

On Wed, Jan 30th the US Federal Reserve lowered its target for short term rates by 0.5%. This was on top of a 0.75% reduction last week. The target rate is now 3.0% and expected to be 2.75% when the Fed meets again in March.

 While this does have some impact on mortgage rates, it primarily ( from the consumer’s view) impacts credit cards and HELOCs (Home Equity Lines of Credit ).

 Typical mortgage rates now are in the 5.25% to 6.5% range depending on type of mortgage, term, and discount points paid.

New figures were out today for new home sales in the US. It showed the number of home sold falling over 9% while the average price increased marginally. Regionally there will be differences. But it is still a buyers market and is likely to be for most of 2008. So if you are in a position, now may be the time to purchase that home in the US.

 Here is an article from the Wall Street Journal today detailing the latest US housing data:

New-Home Sales Tumbled 9%
Amid Falling Prices in November

By JEFF BATER
December 28, 2007 11:31 a.m.

WASHINGTON — New-home sales retreated during November, sinking to the lowest annual rate in 12 years. Home prices also receded, a further negative sign for consumer spending and the economy.

Sales of single-family homes decreased by 9% last month to a seasonally adjusted annual rate of 647,000, the Commerce Department said Friday. October new-home sales rose 1.7% to an annual rate to 711,000; originally, the government said October sales rose by 1.7% to 728,000.

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MORE ON HOUSING

• Economists React: Buyers’ ‘Eminently Rational’ Pickiness

• Econ Blog: Price Slump Hits U.K., Too

Economists had forecast a drop in November sales to an annual rate of 715,000. The actual rate of 647,000 reported for the month was the lowest recorded since 621,000 in April 1995.

Year over year, new-home sales were 34.4% lower than the level in November 2006. That’s the largest year-to-year decline since 35.3% in January 1991.

The steep decline in demand for property is the flip side of a long ascent during the first half of the decade. Builders have responded by slowing groundbreakings. In the third quarter of this year, the housing slump reduced gross domestic product, the sum of U.S. economic activity, by more than a full percentage point.

While GDP surged at a sizzling 4.9% rate July through September, it is seen much weaker — hampered by the housing correction and credit crunch — in the current, fourth quarter, which ends Monday. The first estimate for fourth-quarter GDP will be released by the government Jan. 30.

An ominous sign for the economy is dropping home prices. Consumer spending makes up 70% of U.S. economic activity as measured by GDP. When consumers watch the value of their homes shrink, they tend to feel less wealthy, a mood that can act as a damper on spending plans and, in turn, slow economic growth.

The median price of a new home decreased by 0.4% to $239,100 in November from $240,100 in November 2006. The average price advanced by 0.5% to $293,300 from $291,800 a year earlier. In October this year, the median price was $229,500 and the average was $307,900.

The ratio of new houses for sale to houses sold rose during November, going to 9.3. It was 8.8 in October; originally, the government estimated the October ratio at 8.5. Friday’s data showed an estimated 505,000 homes for sale at the end of November, down from October’s 514,000.

Regionally last month, new-home sales decreased 6.4% in the South, 19.3% in the Northeast, and 27.6% in the Midwest. Sales rose 4% in the West.

An estimated 46,000 homes were actually sold in November, down from 55,000 in October, based on figures not seasonally adjusted.