Market Update January 25, 2008

The very same group of lawmakers that were on a mission at the end of last year to pass a bill that “reformed” the mortgage industry by putting heavy re­strictions and potential penalties for providing consumers much needed diver­sity in mortgage products, is now “coming to the rescue” of some struggling consumers by passing a stimulus plan that includes a way for more homeown­ers with viable credit to finance even larger loans and put a few hundred dollars extra in their pockets.

Industry analysts have been saying for weeks that low mortgage interest rates are not enough to help turn away the wave of potential foreclosures that are beginning to flow into the conforming mortgage market. The “reform” scared many lenders straight back to lending guidelines from the 90’s which severely hindered many homeowner’s ability to take advantage of the current low rates.

The stimulus package that has been approved by the House, and is going to the Senate next week, will give relief to some of these homeowners. As part of the proposed package, the current conforming loan limit would be increased to as high as $729,750 which will allow many homeowners with jumbo loans to refinance at lower rates. It might also allow homeowners with combo loans to possibly refinance into one lower monthly payment and rate. These increases are also being offered to FHA loans as part of this package to allow the Federal Housing Administration to help in the recovery efforts. Additional benefits could be felt by homebuilders and realtors who have struggled to sell properties at the higher price point or who can’t get buyers off the fence due to poor con­sumer sentiment about the market.

It’s now time to hold your breathe as this package is put before the Senate. Although some Senators are commenting publicly that they would like to see it fly through as well, history shows that it only takes one person with their own agenda to stop the progress of any package. If it goes through, we might be seeing the beginning of a refinance rally which would be welcome by many in the industry.

For questions or comments, please contact Chris Scheer at cscheer@cornerstonestl.com or 314.223.9824.