Currently, there are 14 counties in California that will qualify for the highest loan limits (including Los Angeles and Orange counties).
Under the economic-stimulus package, these limits will increase the properties available for loans under these programs from $417,000 (the old cap) up to $729,750.
However, new borrowers will still have to qualify because Fannie Mae & Freddie Mac deal primarily with full doc loans.
Unfortunately, this increase will do little for the thousands of stated income borrowers that will find it next to impossible to qualify for a $700,000 loan.
For example, now you must FULLY DOCUMENT that you have earned between $135,000 to $150,000 for the past two years and have a current pay stub and average ‘other’ debt to borrow $650,000.
In addition, you must have at least 10% equity or down payment and you must have a credit score of 700 or above.
Unfortunately, currently this will exclude a large number of the population.
Consider the facts. From 2005 to 2007, nearly 70% of all jumbos were stated income for a reason.
That reason is that 90% of all stated income borrowers lied about their income to qualify. Thus, the nick name within the mortgage industry the “Liars Loan.”
Without stated income for wage earners, how much will this raise really matter?
Industry experts believe that 50% lied by more than 5% of their true income and 50% by more than 50% of their true income.
The strange thing is that the Wall Street banks that ultimately bought the loans did not care.
In addition, “Refi’s” will still have trouble due to values dropping in jumbo areas and it those areas where the borrowers need the most help.
This loan limit raise definitely will not help lenders with all the “Liars Loans” on their books.
Conclusion, these loans will help some people with large incomes buy homes and do little or nothing for most other borrowers.
About the Author
Greg M. Ingerson, Attorney At Law & Real Estate Broker, is a real estate Broker with LA Home Search in Los Angeles, California. To learn more about the Los Angeles Real Estate Market, please visit http://www.LAHomeSearch.com
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