NEW YORK : Wall Street stocks rocketed on Tuesday as hopes mounted that stressed banks are starting to put housing-related investment losses behind them and come clean about outstanding mortgage loan write-offs.

Stocks gained after the US investment bank Lehman Brothers said it had raised fresh capital totalling four billion dollars and as Swiss banking giant UBS divulged fresh losses, but raised hopes it was getting a grip on its stricken balance sheet.
The leading blue-chip Dow Jones Industrial Average closed up a large 391.47 points (3.19 percent) at 12,654.36.

The Nasdaq tech-heavy composite index jumped 83.65 points (3.67 percent) to 2,362.75 while the Standard & Poor’s 500 index surged 47.48 points (3.59 percent) to close at 1,370.18.

Lehman Brothers said it had raised fresh capital of four billion dollars in a special share offering to help bolster its finances which have been squeezed by mounting mortgage investment losses and a related credit crunch.

“The significant oversubscription for this deal demonstrates the confidence that investors have in Lehman Brothers,” Lehman’s chief financial officer, Erin Callan.

Lehman executives said they had increased the number of special shares offered to four million because of heightened demand from investors seeking to snap up the shares.

Lehman’s shares spiked 10.8 percent to close at 41.64 dollars.

UBS, the biggest Swiss bank, meanwhile revealed further hefty write-downs of 19 billion dollars on mortgage investments tied to sub-prime US home loans granted to Americans with poor credit.

The bank wrote off 18.4 billion dollars in such investments last year, but said on Tuesday it plans to raise almost 15 billion dollars in fresh capital as it ousted its embattled chairman, Marcel Ospel.

Market analysts said investors were looking further ahead and expressed increased confidence that the banking sector might be regaining its footing.

“The equity markets continue to be hit almost daily with some new worry over the sub-prime fallout and its impact on the housing industry and the economy in general,” said John Wilson, a co-director of equity strategy at Morgan Keegan.

“The market appears to be looking through the trough, though, if the behaviour of the housing and transportation stocks is any indicator,” Wilson said.

Although the two-year-old US housing downtown is showing scant signs of stabilising and many economists believe the economy has fallen into a recession, some investors are hopeful that the worst may soon be over particularly as the Federal Reserve has slashed three percentage points off interest rates in recent months.

Such rate cuts, under more settled economic times, would be expected to spur economic growth.

Other banking and financial shares also surged as hopes mounted that the industry was beginning to put its mortgage losses behind it.

Citigroup, which has also seen its finances buffeted by mortgage-related losses, closed up 11.3 percent at 23.84 dollars.

Merrill Lynch was 12.9 percent higher at 46.02 dollars and JPMorgan Chase finished up 9.4 percent at 47.00 dollars.

Bond prices dropped as money flows moved back into equities.

The yield on the 10-year US Treasury bond rose to 3.545 percent from 3.432 percent on Monday and that on the 30-year bond increased to 4.382 percent from 4.306 percent. Bond yields and prices move in opposite directions.

European share markets also benefited from a confidence boost as overseas investors also bet that the global financial crunch could be nearing an end.

In London the FTSE 100 index gained 2.64 percent, the Paris CAC 40 shot up 3.38 percent and the Frankfurt Dax added 2.84 percent. - AFP/de

So the Federal Reserve cut rates again. Many mortgage applicants are calling their mortgage representative and expecting a lower interest rate. Others who have been waiting to refinance are puzzled as to why mortgage rates have not moved lower during recent 5 Fed rate cuts. In fact mortgage rates are now higher than they were before the Fed began cutting rates by in January. This is difficult to explain to many consumers who have watched a 2.5% reduction by the Fed with no benefit in mortgage rates.Is a Fed rate cut really good news for mortgage rates? The facts may be surprising. The Fed can only control the Discount Rate and the Fed Funds Rate. This is very different from mortgage rates. A mortgage rate can be in effect for 30-years, a rate that is set by the Fed can change from one day to another.Another common mistake is in thinking that 30-year Treasury bonds or 10-year Treasury notes are directly pegged to mortgage rates.Those are government securities that are backed by the full faith and credit of the U.S. government and have no direct effect on mortgage rates.So what are mortgage rates based on? As it turns out the answer is mortgage-backed bonds known as Mortgage Backed Securities (MBS). Bonds issued by Fannie Mae and Freddie Mac (MBS) and the trading performance of those bonds will determine the direction of mortgage rates. Finding the catalyst that causes mortgage bonds to move will give you the keys to finding out what makes mortgage rates rise or fall.We know that inflation will always be a negative for any long-term bond because it eats away at the future returns. Since the bond will pay a set amount over a long period of time, that amount will be less valuable if inflation is high. Over the past several years, one catalyst that seems to be working in the opposite direction of MBS prices is the Nasdaq and broader stock market.As bond prices rise, interest rates fall. As bond prices fall, interest rates rise. The charts accompanying this article show the Nasdaq Composite Index and the Fannie Mae 6.5% mortgage bond tend to follow paths that are almost mirror images of each other. The consistency of this behavior is astounding.As the Nasdaq moves higher, bond prices move lower causing interest rates to rise. As the Nasdaq declines, mortgage bonds benefit, causing mortgage rates to fall. Additionally, and unlike common opinion, Fed rate cuts have had virtually no direct effect on mortgage rates. Moreover, it appears that since Fed rate cuts act to stimulate the Nasdaq, they have a negative effect on mortgage rates. 

The bottom line is that it appears mortgage rates will get better if the Nasdaq sells off and will get worse if the Nasdaq rallies. So it is not necessarily what the Fed does that affects mortgage rates, it’s how the Nasdaq and broader stock market interprets the Fed’s action that will ultimately influence the direction of mortgage rates. This is because money managers and mutual fund companies typically keep funds in either stocks or bonds with very little in cash. If stocks are in favor, money is pulled from bonds, causing bond prices to drop and interest rates to rise. When stocks are being sold off, the money is then parked into bonds, which improves bond prices and causes interest rates to decline.On the chart of the Nasdaq Composite Index above, notice how the price movement higher on the Nasdaq seems to correlate to mortgage bond price deterioration (shown below) and vice versa. Once again, lower bond prices translate to higher mortgage rates and higher mortgage bond prices mean lower mortgage rates.The chart below shows how the Fannie Mae 6.5% mortgage bond has performed during the same time period. The green circles indicate Fed rate cuts and the area circled in red shows when the Fed hiked rates.

A closer look at the 5 rate cuts by the Fed this year (see chart below) shows that mortgage bond prices deteriorated after each Fed rate cut. This means that mortgage rates rose after the Fed had cut rates while many consumers were expecting their mortgage rates to decline. Worse yet are the consumers who missed the opportunity to obtain a lower rate because they mistakenly waited for the anticipated Fed action to cut short-term rates, thinking that longer-term mortgage rates would decline as a result.

Predicting the future is tough, so nothing is written in stone. Keep an eye on the Nasdaq, and keep in mind that the best rates may be behind us. But, mortgage rates are still low and could have some quick dips so make the most of them while they last. 

Citigroup Inc., the biggest U.S. bank, may need additional capital from outside investors as losses stemming from the collapse of the U.S. subprime mortgage market increase. Bond market quiet and relatively unchanged. Stock futures point towards a lower open after Intel Corp. said lower chip prices will hurt earnings.

Here we go again…another action packed week in store, with the main event being Friday’s monthly official Jobs Report. This report is always of high interest, as it gives a good read on the health of the economy. Boiled down simply — if businesses are hiring, it means their outlook is good for the future growth of their business and the economy overall. Additionally, the more employed workers there are, the more dollars being earned that can be used to buy goods and services - also good for keeping the economy thriving.But the headline number often comes with “revisions” of past numbers — which is often the wildcard within the report. Some past revisions have actually added more jobs to the count than the current month’s number in total. And for added excitement, in advance of Friday’s official Jobs Report, gigantic payroll company ADP will release their own count on job growth on Wednesday. And while the numbers are not “official” and are sometimes seen as unreliable — the markets won’t be able to help but take notice of their findings, and may react to their release.Bottom line — volatility remains in vogue. The chart below shows how Bonds improved significantly over the past week, helping home loan rates improve as well. But remember — another Fed Cut is likely in the cards, just a few short weeks away. As we’ve discussed in the past, a Fed Rate Cut can often result in a move higher for home loan rates, as a Fed Rate Cut often spurs on spending and therefore inflation, the arch-enemy of Bonds and home loan rates. So while Bonds and home loan rates have seen nice improvement of late, they are heading towards both a technical “ceiling of resistance”, as well as a March 18th Fed meeting that could cause rates to worsen. If you - or one of your friends, family members, neighbors or coworkers - have been considering a refinance or purchase, feel free to reach out to me to discuss taking advantage of current low rates.

Chart: Fannie Mae 5.5% Mortgage Bond (Friday Feb 29, 2008)

“I DON’T MEASURE A MAN’S SUCCESS BY HOW HIGH HE CLIMBS…BUT HOW HIGH HE BOUNCES WHEN HE HITS BOTTOM.” General George S. Patton And the General himself would certainly consider Bonds to be a success last week, as they moved lower to hit a technical “bottom” at the 200-day Moving Average, but then bounced significantly higher throughout the course of the week, helping fixed home loan rates improve by about .25 to .375%.What caused all the activity? Remember that weak economic news tends to be bad for Stocks, but good for Bonds and home loan rates, as money flows out of Stocks and into Bonds. And last week had its share of weak economic news, combined with testimony before Congress by Fed Chairman Ben Bernanke.The news included higher wholesale inflation with the Producer Price Index (PPI) jumping to its highest level since October 2004 on surging energy and food prices. But price inflation on the producer or wholesale side can’t always get passed directly on to the consumer on the retail side. Friday’s Personal Consumption Expenditure (PCE) reading showed consumer inflation to be higher, but just slightly, as expected. The PCE is the Federal Reserve’s most highly watched measure of inflation, and the current overall rate of year-over-year inflation at 2.2% does remain just above the Federal Reserve’s comfort zone for consumer inflation.And speaking of the Fed, Chairman Ben Bernanke testified before Congress last week, making comments that prompted Stock investors to sell off and move money over into Bonds. The Bond market also enjoyed “dovish” comments made by Gentle Ben about inflation and the recent aggressive cuts made by the Fed, and his testimony was largely responsible for the improvement in Bonds and home loan rates. But read on, and learn how the next official Fed Meeting and Rate Decision on March 18th could impact home loan rates…it might surprise you.THE ECONOMIC STIMULUS PLAN HAS BEEN ALL OVER THE HEADLINES…BUT DO YOU KNOW HOW IT WILL IMPACT YOU? LEARN ABOUT REBATE CHECKS AND MORE IN THIS WEEK’S MORTGAGE MARKET VIEW!

 Max Jarman

The Arizona Republic

Feb. 9, 2008 10:24 PM

For Zonies with serious San Diego addictions, there could be an upside to falling real-estate prices.

 

A condo-market meltdown has put the dream of owning a piece of downtown San Diego within the reach of more Valley residents.

 

Tightening credit and pain caused by rising payments on subprime loans have put the brakes on new-condo sales, sending prices plummeting and strapped buyers running for the exits. 

 

While still lofty, prices for some units are now more than 30 percent below previous highs and still falling.

 

A new 725-square-foot “bank-owned” studio, two blocks from the San Diego Padres’ ballpark, is listed at $189,900, down from $289,900 at the end of September.

 

“Prices are at least starting to make sense,” said Stanley Paul Cook, a former Phoenix resident who is now a San Diego real-estate consultant.

 

He noted that real-estate speculation over the past few years pushed average San Diego home prices near $700,000, making it one of the nation’s most expensive housing markets.

 

 

 

But the deals probably won’t last. Construction of new condos has dramatically slowed, and when the existing units are sold, prices are expected to creep up. After all, it is San Diego, still one of the country’s most desirable places to live.

 

Falling mortgage rates and a possible increase in the size of loans that can be sold to government-backed agencies also could help jump-start the stalled market. And there is increasing interest from foreign buyers who get an additional discount due to the weak dollar.

 

But for now, terms like “short sale” and “lender-owned” have become the bywords of the real-estate market downtown, along with “desperate” and “make offer.”

 

Lockboxes for real-estate agents cover railings outside buildings. Inside, residents come home to find foreclosure notices on their neighbors’ doors.

 

Tiny ‘treasures’

 

The building boom, spurred by an aggressive downtown redevelopment effort and the construction of the Padres’ Petco Park, brought thousands of new condominium units to downtown San Diego in the past few years.

 

Real-estate speculators fueled the frenzy, flipping (selling, often before taking occupancy) properties from building to building while creating an artificial demand that sent prices through the roof. “The market was so good and prices were going up so fast that we were oblivious to any kind of a peak,” said Ken Baer, an agent with Willis Allen Real Estate in San Diego. “We knew things were high but thought they would keep going up.”

 

Unit 211 in Discovery at Cortez Hill, for example, sold in 2002 for $409,000 and in 2004 for $699,000. The unit sold to a Phoenix couple in December for $470,000.

 

Downtown, there are more than 1,000 condominiums on the market in a roughly 125-block area. That is up from 700 last year and 500 in 2005.

 

Of the 1,000 units, about 400 are in new buildings that are just being completed.

 

Most of the others have been built within the past few years, and many, bought by speculators, have never been lived in.

 

They are generally small. One-bedroom and studio units, some under 500 square feet, make up the largest category of unsold condos on the market.

 

“An entry-level condo that sold for $400,000 a year ago is practically impossible to sell at that price in this market,” said San Diego real- estate agent Mark Mills. As a result, prices are dropping fast for the small condos, and many are landing in foreclosure.

 

Some frustrated owners, now struggling to sell their properties, blame the developers for building so many small units.

 

But with the high cost of land and construction, Mills noted the tiny condos were the only way some developers could make their projects make economic sense.

 

The Centre City Development Corp., a non-profit agency that is spearheading the redevelopment of downtown San Diego, reported that the agency has assisted in the development of 7,200 condominium units in more than 50 projects downtown since 2001.

 

That has helped push the downtown population to 30,000 from about 10,000 at the start of 2000. Another 60,000 are forecast to move downtown, bringing the population to 90,000 by 2030.

 

“You can’t beat it. Everything is close by,” said Gary Smith, a longtime downtown resident and president of the Downtown San Diego Residents Group. “You drive to the golf course on weekends but walk to everything else.”

 

Although new construction has fallen off dramatically, more than 1,300 units are expected to be completed in the next two years. Thousands more have been approved and are waiting to be built.

 

Arizonans’ views

 

Susan and Michael Markowitz of Scottsdale spent three years studying the downtown San Diego market before buying a bay-view condo in April.

 

“Our timing wasn’t the greatest, but we weren’t looking to make money and couldn’t be happier,” Michael Markowitz said.

 

On his last visit, he walked to his condo from the airport.

 

“It took about 40 minutes, and it was a beautiful walk,” he said. “I never imagined it was even possible to walk home from an airport.”

 

Scottsdale real-estate agent Bob Sutton has owned a second home in San Diego since 1997.

 

“It was a great way to experience the whole Southern California lifestyle thing without having to pick up and move,” he said.

 

Sutton started out with a $73,000 condominium in Pacific Beach and moved up to a downtown high-rise four years ago. He bought another unit as an investment at the peak of the market and has been trying to sell the one-bedroom, 800-square-foot unit since. He’s hoping to break even or take a small loss on the property.

 

“It hasn’t turned out to be such a great investment,” he said.

 

Converted to hotels

 

While some condo projects are being abandoned or put on hold, others are being reinvented as hotels, apartment houses and office buildings.

 

“Before, they were all condominiums,” said Sherm Harmer, chairman of the Downtown Residential Marketing Alliance, which promotes downtown housing. “Now, it’s a mix.”

 

The Centre City Development Corp. plans to use the lull in condo construction to catch up on infrastructure improvements. That includes the development of 10 new parks, a new public library and waterfront improvements, among other projects.

 

Upside down

 

The downtown condo market peaked in late 2006 when sales slowed and prices started to fall.

 

“Everything went into the crapper the same time I bought this place,” Vern Scholl said of his 1,550-square-foot penthouse in the Park Place complex downtown. Scholl paid $1.9 million for the unit in 2006 and had been trying to sell it ever since. He originally asked $2.3 million but was trying to negotiate a short sale for $1.65 million prior to its sale for $1.5 million at a January foreclosure sale.

 

“What do you do when you owe more than it’s worth?” he said.

 

Lew Breeze, a number cruncher and real-estate agent, estimates that there were 20 foreclosure properties on the market a year ago and now there are more than 100. There are even more short-sale deals.

 

A short sale occurs when a lender agrees to take a loss on the sale of a property in order to avoid the foreclosure process and the possibility of a greater loss.

 

Short sales also allow owners to get out from under properties they can’t afford without incurring the stigma of foreclosure.

 

An Aqua Vista penthouse that sold for $2.1 million in 2004 is now on the market as a short sale for $1.2 million.

 

Turnaround ahead

 

A slowdown in new construction eventually is expected to lead to a short supply, particularly if a ramp-up in new construction lags behind the falling supply of units.

 

Baer added that foreign investors, particularly from Canada, are beginning to snap up the units, gaining deeper discounts with the declining value of the dollar.

 

He believes there is also considerable pent-up demand out there from people who have always wanted to live in San Diego but were put off by the high prices.

 

 

 

While sellers scramble, civic officials remain pragmatic about the situation.

 

Barbara Kaiser, vice president of real-estate operations for San Diego’s Centre City Development Corp., said the city is still processing design review and zoning changes for new residential projects.

 

“People are positioning themselves for the next boom,” Kaiser said.

 

 

 

Reach the reporter at max.jarman@arizonarepublic.com or (602) 444-7351. 

By Rex Nutting, MarketWatch

Last Update: 9:40 AM ET 2/26/08

WASHINGTON (MarketWatch) — Home values in the U.S. fell 8.9% in 2007, the largest decline in at least 20 years, Standard & Poor’s reported Tuesday.The Case-Shiller National Home Price Index fell 5.4% in the fourth quarter alone, S&P said.“Wherever you look, things look bleak,” said Robert Shiller, chief economist for MacroMarkets LLC and co-inventor of the index.Prices in 17 of 20 major cities were lower at the end of 2007 than at the beginning, with eight cities falling in double-digits. After adjusting for inflation in other consumer prices, home prices were lower in all 20 cities.For the fourth straight month, nominal prices in all 20 cities were lower than in the previous month.The biggest annual declines were seen in the former bubble areas in Florida and the Southwest. Home prices in Miami were down 17.5% in the past year, while prices fell 15.3% in Phoenix and Las Vegas.National home prices were down 10.2% from the peak reached in late 2006. Some economists say home prices will fall about 20% to 30%.Between 2001 and 2006, home prices rose an unprecedented 63%.The 20-city index fell 2.1% in December and 9.1% for the year. The original 10-city index fell 2.3% in December and 9.8% for the year.Phoenix had the largest decline in December, falling 3.5%, followed by San Diego at 3.4% and San Francisco at 3.2%The Case-Shiller index, which tracks multiple sales of the same homes, is considered by many observers to be the best gauge of national and metropolitan-area real-estate values. Its major flaw is that it may overemphasize the coastal regions that had the biggest bubbles.But even in non-bubble cities, such as Atlanta, Cleveland, Chicago, Dallas, Detroit and Minneapolis, prices are dropping.Here’s a list of price changes over the past year for the 20 cities in the index:Miami, down 17.5%; Las Vegas, down 15.3%; Phoenix, down 15.3%; San Diego, down 15%; Los Angeles, down 13.7%; Detroit, down 13.6%; Tampa, down 13.3%; San Francisco, down 10.8%; Washington, down 9.4%; Minneapolis, down 8%; Cleveland, down 6.3%; New York, down 5.6%; Chicago, down 4.5%; Denver, down 4.5%; Atlanta, down 3.4%; Boston, down 3.4%; Dallas, down 2.4%; Seattle, up 0.5%; Portland, Ore., up 1.2%; and Charlotte, N.C., up 2.3%.

---

Rex Nutting is Washington bureau chief of MarketWatch.

Copyright © 2008 MarketWatch, Inc. All rights reserved. Please see our Terms of Use.MarketWatch, the MarketWatch logo, and BigCharts are registered trademarks of MarketWatch, Inc.Intraday data provided by ComStock, an Interactive Data Company and subject to the Terms of Use.Intraday data is at least 15-minutes delayed. All times are ET.Historical and current end-of-day data provided by FT Interactive Data.

 

After a closed market on Monday, all of the coming week’s economic reports will be delivered on Wednesday and Thursday - but don’t expect that any volatility will be limited to those days.The most recent read on inflation will come via the Consumer Price Index, being reported on Wednesday alongside the latest Housing Starts and Permits data. And of particular interest - the “Meeting Minutes” from the last Federal Reserve meeting will be released as well. These Minutes give the inside commentary between members - and remember, Dallas Fed President Richard “Loose Lips” Fisher was not in agreement with the most recent cut to the Fed Funds Rate. His seemingly uncontrollable remarks regarding his concerns over inflation have rocked the markets of late, with Mortgage Bonds losing 187 basis points since his tirade on February 7th - that translates into about .375% higher for home loan rates. Bottom line - the inflation data and Fed Meeting Minutes could be real market movers. Since inflation erodes the value of the fixed return provided by a Bond, if the news of the week continues to reek of inflation - this could spell more bad news for Bonds and home loan rates.

Chart: Fannie Mae 5.5% Mortgage Bond (Friday Feb 15, 2008)

 

“CUTS LIKE A KNIFE, BUT IT FEELS SO RIGHT” Bryan Adams And financial pros will tell you it’s wise to never try and catch a falling knife. Seems like decent advice in general - but in the financial world, it means that when the price of a Stock or Bond is in the midst of a severe decline, be very cautious about stepping in to buy…even if it feels so right because the price starts to look cheap. That’s because when prices declines sharply, it often gets even worse, making it hard to call the bottom. That’s why many investors, who attempt to buy on the way down, say the feeling cuts like a knife. And over the past week - Bonds have been dropping much like a knife, and home loan rates have risen by about .25% across the board.And speaking of sharp objects, Cupid’s arrows might have been flying around everywhere last week - but little love came calling for the Bond market. First, Retail Sales for January were far better than expected - which was good news for Stocks, but as money flowed into Stocks, pulled money out of Bonds and caused Bond prices to move lower. Next, Fed Chairman Ben Bernanke gave it to us straight from the heart, as he testified that the Fed would keep the door open to more rate cuts, which worried Bond Traders about the risk of more inflation ahead. And unlike the media seems to believe, cuts to the Fed Funds Rate generally cause home loan rates to rise, not decline. Why? Because Fed Rate Cuts can spur on more inflation, as it becomes less expensive to finance business and personal purchases. And as a result, inflation erodes the value of the fixed return provided by a Bond - so in the face of inflation, Bond prices fall, and home loan rates rise.Finally, Moody’s credit rating agency downgraded FGIC - one of the very largest Bond insurers in the world. This is another concern for Bonds, as the downgrades of Bond insurers in turn threaten the ratings of the Bonds they insure. If the added safety from insurance on Bonds is in doubt, the yield or rate on those underlying Bonds must increase to compensate investors for the additional risk. All in all - a tough week for Bonds and home loan rates - read on to find what’s in store for the week ahead.AND DON’T MISS THIS WEEK’S MORTGAGE MARKET VIEW - ALERTING YOU TO IRS SCAMS, TO WHICH EVEN THE SAVVIEST HAVE FALLEN PREY.

By Paul Jackson

President Bush on Wednesday signed H.R. 5140, the Economic Stimulus Act of 2008, making official a temporary boost to both conforming and FHA loan limits. The new law boosts the GSE conforming limit to as much as $729,750 through the end of this year, and also raises FHA lending limits to the same level for high-cost areas.

“I know many Americans are worried about meeting their mortgages,” President Bush said prior to signing the bill. “My administration is working to address this problem.”

Bush cited HOPE NOW and the recently announcedProject Lifeline initiative as examples of ongoing work by the administration to address the housing crisis.

A White House-produced fact sheet covering the new growth package is available here.

The U.S. Department of Housing and Urban Development now has 30 days to publish a database of house prices that will be essential in determining which markets get access to the new ‘jumbo conforming’ or ‘expanded FHA’

loan products.

Of course, that could prove to be bit of a problem in and of itself, given that HUD doesn’t currently independently gather or otherwise publish home price data. Bankrate’

s Holden Lewis was on this right from the start; he and I had chatted briefly on the matter when Congress first passed the bill:

The Office of Federal Housing Enterprise Oversight, or OFHEO, compiles periodic indexes of home prices. Fannie Mae and Freddie Mac use the OFHEO data each November to update the next year’

s conforming limit.

The Federal Housing Finance Board and the National Association of Realtors both collect and publish home prices. The FHA takes information from both entities to calculate the FHA limits for each metro area.

Congress could have pegged the conforming and FHA limits to data collected by OFHEO, the Federal Housing Finance Board or the Realtors. But it didn’t. Instead, the law says: “The secretary of Housing and Urban Development shall publish the median house prices and mortgage principal obligation limits … for all areas as soon as practicable.”

The law gives HUD 30 days to publish the database of house prices.

The simplest solution would be for HUD to use the same house price information it uses to calculate FHA loan limits. But a HUD spokesman says: “We have not yet determined if the same data will be used to make the new calculations.”

That leaves lenders in the dark until HUD makes a decision.

While price designations aren’t yet known, a few industry sources close to the process have suggested that the new conforming limits won’

t be as broadly applied as many might expect; just 15 counties in California might be designated as eligible for the loan limit increase, for example.

That’s not the only grey area out there, of course — there’s also the as-of-yet unclear issue of TBA trading in the secondary market that will need to be settled, something HW has covered often recently. (The unconfirmed word from our sources today is still that SIFMA wants to keep the new ‘jumbo conforming’

loans out of TBA pools.)

It’

s also unclear exactly how the GSEs will price the newly-conforming loans, given that neither Fannie nor Freddie have experience underwriting within the jumbo mortgage market.

Similarly, it isn’t exactly clear what the initial underwriting criteria will be, although most expect it to at least sit close to existing ‘traditional conforming’ guidelines — if not ending up more restrictive. “OFHEO has already gone on record saying that jumbo loans are more risky, so I wouldn’t be surprised if the underwriting guidelines end up being tighter than what you’d see for usual conforming products,”

said one executive at a large lender, who asked not to be identified.