2011 Jul 28th

The Debt Ceiling! The Debt Ceiling! Is the Sky Really Falling or Just Another Chicken Little?

by William Kumpf

If you have been watching anything from CNN to the Today Show, each day we seem to be moving closer to an invisible cliff on August 2nd at which point we are all supposed to hold our breath, hug our loved ones and jump and hope the world as we know it doesn’t come to an abrupt end.chix little

Should we be worried? Think NFL lock out. It’s usually in the final hour, but a deal will get done, as it has in the past, to extend the debt ceiling. So what does this mean for homeowners and homebuyers? Given that bond pricing (and interest rates) have held steady or improved throughout this “crisis”, the market is betting the debt deal gets done too. Bottom line for homeowners, with a weak labor market and sluggish economy we don’t see a catalyst for rates to go higher.

The Bigger Issue – Loan Limit Changes

Of bigger concern for homeowners and homebuyers is the scheduled drop in the conforming loan limits at Fannie Mae, Freddie Mac and the FHA. The current $729,750 loan limit will be reduced to $625,000. Nationally, this affects only 5% of homes, but the percentage is far higher in certain local markets like the New York metro area. While we all love to worry about what the lowest rate is and where to find it, rates across nearly every loan program are still excellent.

As of today, a new buyer can borrow $417,000 for 30-year fixed mortgage at 4.375% and at 2.750% for a 5/1 ARM.  Bottom line, that’s cheap! All the talk we hear about debt ceilings has a lot more impact on consumer confidence than interest rates. The take away is in complicated markets (like this one), don’t freeze. Now more than ever, it is critical that you engage a professional. Use the best realtors and mortgage brokers available to ensure you are getting the best deal for your home.

William H. Kumpf has 20 years experience in the financial markets. He has worked as a mortgage banker/broker for the past decade and specializes in helping clients (be it first time buyers or experienced investors) integrate mortgage planning in to their financial goals. William is also a Certified Mortgage Planning Specialist, CMPS and is Vice President of Lending with NorthStar Funding on Hudson Street in Hoboken, NJ.  He can be reached at [email protected]

  1. Dave Steinberg

    Lenders are starting to post guidelines counting down to the September 30 expiration for these higher limits. Importantly, banks will not be able to extend closings beyond September 30 [irrespective of whose fault it is!]

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