On February 13, 2008, President Bush signed the
Economic Stimulus Act of 2008 (the "Act") into law. The Act provides for, among other things, an increase in the Fannie Mae/Freddie Mac conforming loan limits to the
higher of either (a) the 2008 conforming loan limit for a residence of the applicable size ($417,000 for a single family dwelling), or (b) 125% of the area median price for a residence of the applicable size but not to exceed 175% of the 2008 conforming loan limit ($729,750 for a single family dwelling). HUD must publish the applicable house prices and mortgage principal obligation limits as soon as practicable but not more 30 days after enactment of the Act. The Act applies to loans originated on July 1, 2007 through December 31, 2008.
The applicability of the state-specific high cost test in the following states is determined in part by reference to, among other things, the Fannie Mae and/or Freddie Mac conforming loan limits: California, the District of Columbia, Georgia, Indiana, Maine, New Mexico, New York, North Carolina, Tennessee, Texas and South Carolina. Generally, loans originated in the foregoing states are not subject to that state's high cost law if the loan amount exceeds the Fannie Mae/Freddie Mac conforming loan limit. The increase in conforming loan limits under the Act will result in a higher, and perhaps significantly higher, number of loans originated in the states listed above to be subject to that state's high cost law.
The Act raises a number of interesting questions. For example, the increase in the conforming loan limits appears to be effective immediately, yet HUD has 30 days within which to publish the applicable house prices and mortgage principal obligation limits - which conforming loan limits apply during this interim period? Also, if a loan originated after July 1, 2007 would have been a state high cost loan but for the fact that it was excluded from coverage because the loan amount exceeded the then-applicable conforming loan limit of $417,000, what legal effect, if any, would there be if the loan amount did not exceed the increased conforming loan limits? More practically, is that loan still salable in the secondary market?
Effective immediately and until such time as HUD publishes the applicable house prices and mortgage principal obligation limits as it is mandated to do under the Act, the DocMagic high cost tests will use the Act's maximum conforming loan limit of $729,750 for single family dwellings for purposes of determining coverage under each state's high cost law. Please contact the DocMagic compliance department at compliance@docmagic.com if you have any questions regarding the above information.
1 The District of Columbia Home Loan Protection Act 0f 2002 (the "DCHLPA") applies to a loan if, among other things, the principal amount of the loan does not exceed the Fannie Mae conforming limit for a comparably sized dwelling. Because the DocMagic software does not currently capture number of units, in the case of a 2-4 family dwelling, the high cost test defaults to the highest, or 4-unit, conforming loan limit.
2 The North Carolina High-Cost Home Loan Law (the "NCHCHL") applies to a loan if, among other things, the principal amount (or the maximum credit limit in the case of an open-end loan) of the loan does not exceed the lesser of $300,000, or the Fannie Mae conforming loan limit for a single-family dwelling. Therefore, the increase in the Fannie Mae conforming loan limit will have no impact on the application of the NCHCHL.
3 The Tennessee Home Loan Protection Act (the "TNHLPA") applies to a loan if, among other things, the principal amount of the loan does not exceed the lesser of $350,000, or the Fannie Mae conforming loan limit for a single-family dwelling. Therefore, the increase in the Fannie Mae conforming loan limit will have no impact on the application of the TNHLPA.
4 The Texas high cost home law applies to a loan if, among other things, the principal amount of the loan does not exceed one-half of the Fannie Mae conforming loan limit for a single family, 2-, 3- or 4-unit dwelling.
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