The secondary market for loans has dried except for “conforming” loans. This has made it hard for people to purchase or refinance real estate in an already difficult housing market. Here’s my summary of the good and bad of the Economic Stimulus Act of 2008 that Bush will sign soon sign into law:
• The best part is that it will be retroactive to July 1, 2007. This will allow banks to improve their balance sheets by selling of existing jumbo loans. With improved financial stability it’s likely that the banks will then begin to loosen some of the extremely tight lending standards that have been in effect for months. This will help add liquidity to the market.
• The next best thing is that the new conforming loan limit will no longer be a national number but instead vary by region. If they qualify, borrowers could obtain “conforming” loans up to 125% of an area’s median home price (maximum of $729,750). This will help adjust for variations in housing markets.
• The worst part of this package is that it is temporary. It is slated to expire at the end of 2008. Therefore, congress will need to act again in order to provide long-term solution. This will cause more liquidity problems in 2009 unless congress acts.
Most people talk only about the “rebate” checks but I think more people should talk about the new conforming loan limits. These adjustments are only temporary, but they will likely have a larger impact on our economy than a few hundred dollars per person.
