This is the problem with artificially low rates. Keeps people thinking that this is where rates always should be. It is too dumb for words that U.S. policy is to try and spur home sales with artificial low rates. Either the government has to keep the down forever, or the minute the market finally takes over and rates go up, sales grind to a halt, prices stagnate and go down (since high prices no longer supported by fake rates), people “underwater”, blah, blah. Wash, Rinse, Repeat.

I have even less of a clue, but maybe you are looking at it from a “reverse” perspective. Maybe the non-confirming rates represent actual free-market for mortgage-backed securities, and the conforming rates are artificially low because of the ongoing fed intervention.

Life hands out lots of arbitrary cut-off points. A 70% test score may be enough to pass, but does not mean that the person who passed with 70% had any better appreciation of the subject matter than the person who failed with 69%. I assume there is a cut-off for getting welfare or food stamps. The family who makes a dollar too much can loose thousands in benefits.

I suspect the fed has to drawn the line somewhere, since voters in Kentucky are not thrilled with guaranteeing high-priced CA mortgages. (I’m not either, and I live in CA). While I think it is bad policy to prop up housing prices beyond what people can actually afford (e.g., in form of artificially low interest rates maintained by fed), politicians are hell-bent on doing it to suck up to our “gimme, gimme, we deserve it” mentality. However, the current politicians are also exploiting class-jealousy, which makes it hard for them to justify propping up prices that, for the vast majority of Americans, are for “the rich”.

The buyer you refer to needs to come up with anbother $16K, or the seller needs to drop the price another $16K, or there is no deal. That’s how it goes with cut-off points on subsidies.

The only thing I can figure is that the market for mortgage backed securities is such a mess right now that logic no longer plays a part. Of course, the flip side is that logic didn’t play a part when they were buying all of those 100% financing, stated income loans leading up to the bubble bursting, either. Where did these guys get there education in financing??

Entirely off subject, but I just need to tell you how much I enjoy your sense of humor. Humor has been in short supply lately.

Jakob,

Good point about the HELOCs. I have a client right now who is considering a HELOC on his home in lieu of primary financing on a second home because of the rate dichotomy. Of course, this option is predicated on one having sufficient equity (which, fortunately, he does). Remember, though, you can only write off interest on the first $100k of the home equity loan. At any rate, the bottom line is that financing is becoming a Tylenol moment for anything in the non-conforming category.

The FHA and VA limits are still 697,500 for Single Family homes in San Diego.

You can also still do piggyback loans to get under the conforming limit, and HELOC rates are really good right now. Most banks want a ~75% LTV ratio after both loans, but then they’ll let you structure it with a very large piggy if you need to. So, you can buy a $750,000 house by putting down $187,500 pulling a heloc for $145,500 and getting the final 417k in a 30 year fixed.

HELOC and conforming rates are super cheap right now. You could get under 6% with no points on the 30 year fixed and pay 4% on a HELOC if you shop around. The only real challenge is the 25% down payment. Factoring in the incredibly low rates of today and the reduced prices of houses over the last 3 years, housing affordability is miles ahead of where it was.

And remember, we are not talking about super high end homes here (for SD, at least). this is about a home value of around $695,000 (assuming 20 % down). That’s a lot of homes out here. The market for these homes is tedious, at best, at the moment. It will only get worse if something isn’t done quickly.

Think about it. If a buyer is qualified and has 20% into the game on a home with a loan of $550,000, where/how is the risk that much worse than a home with a $540,000 mortgage??