What Is Mortgage Meltdown?

by : iwantanoffer

Everyone is talking about the great mortgage meltdown and its effect on the real estate market. For the most part, the news is bad, particularly for those who already own property and are trying to sell it. However, there is one group of home buyers and property owners who can actually benefit from the current situation.

The mortgage meltdown has gotten so serious that the banks and the government cannot ignore it. They have to do something and one of the things they have to decided to do, is to raise the limit for both FHA, government insured financing and for what is known as conventional financing and conforming loans.

Conventional financing is arranged through banks, savings and loans and mortgage companies. Unlike FHA VA loans, they are not insured by the government. Conventional loans fall into two categories, Conforming loans and Jumbo loans. Conforming loans can be sold to Fannie Mae or Freddie Mac, the two giants quasi independent, government chartered agencies which exist specifically to buy loans from banks and other lenders, creating liquidity in the mortgage market.

Until recently, Conforming loans have to be for $417,000 or less. Any loans above $417,000 were considered Jumbo loans. They could not be sold to Fannie Mae or Freddie Mac and so they cost more. Borrowers pay higher interest rate and they often paid more points or fees to get Jumbo loans. Then, with a mortgage crunch hit, it was almost impossible to get jumbo loans without paying absurdly high fees. This left a lot of would be homebuyers and homeowners who wanted to refinance, out in the cold.

Now, the government has stepped in to do something about it. Not only is the limit for Conforming Conventional loans being raised from $417,000 to $750,000, but the limit for FHA insured home loans, which was only $365,000, is also being raised to $750,000. This will enable tens of thousands, possibly hundreds of thousands of people to buy a home or refinance a home of affordably, so perhaps there really is a silver lining to every cloud after all.