L.A. take on the economic stimulus package and loan limit increase.

Last week, lawmakers passed two new initiatives that will impact our personal and professional lives in Los Angeles.

On the National level, President Bush signed into law the highly promoted Economic Stimulus Package prepared by Congress that includes a provision to "increase the conforming loan limits" for a temporary period.

On the local level, the LA City Council passed a new law that requires sterilization of cats and dogs 4 months of age or older. This law is to prevent the animal shelters from overcrowding of pets.

The National law is to prevent overcrowding of foreclosures and short pay transactions that negatively impacts our industry by driving home prices down.

Although we don't know when the local law goes into affect, it's safe to say details of the Economic Stimulus Package will NOT be available until next month because:

• First, Fannie Mae, Freddie Mac and FHA (the Agencies) must establish guidelines they will require mortgage lenders to follow that comply with Congress initiatives.
• Second, the Agencies must negotiate their guidelines with Wall Street to assess risk, relative to the risk for existing conforming and non-conforming loans.
• Third, Wall Street must quantify risk-based pricing adjustments, the method of pooling these mortgages, the delivery channel and the servicing - basically establish a third-tier market for investors.
• Fourth, lenders will need to update software and disseminate guidelines as quickly thereafter in order to take new loan applications.

As of today, limited information is available because the Agencies have yet to finalize the guidelines. However, what we do know is that:

• Implementation is more complex than the traditional loan limit change that we manage at the end of each year.
• The increased limit is a temporary solution for "some" high-cost areas based on yet to be identified Metropolitan Statistical Area (MSA) data.
• The Los Angeles MSA includes statistical data from the greater Long Beach and Glendale markets.
• The maximum loan limit for a SFR may be as high as $729,750; However, this amount is NOT NATIONWIDE for all high-cost MSAs. The increases available in Los Angeles County might be based on the area median sales price similar to the HUD process where census tract numbers are used to limit loan amount.
• The calculation might include taking 125% of the area median sales price in the specific census tract number the property is located, not to exceed $729,750.
• The temporary loan limits will apply to transactions already closed dating back as July 1, 2007 so lenders can sell product in their portfolio to generate new capital for future loans.
• The Agencies need to determine if they want lenders to use 2006 or 2007 area median sales prices or both since the temporary law goes back to mid-2007.
• The deadline is December 31, 2008