Bank of America Closes the Door on High-Balance Conforming Loans.

June 30, 2011


$729,750 Conforming Loan Ends.

Bank of America has informed its clients that as of July 1 (tomorrow),  they will no longer write applications for high-balance conforming loans up to the $729,750 limit.   This move was made in anticipation of the September 30 deadline for the U.S. government to once again extend the terms of the Economic and Housing Recovery Act of 2008 for another year.   As I wrote in this post, it is widely expected throughout the industry that government will not extend the upper limit of $729,750 for the upcoming year, as they believe the housing recovery has enough momentum to survive without this crutch.  But Fannie Mae and Freddie Mac will not abandon the extended loan limits entirely — if things go as anticipated, the upper limit for a conforming loan after September 30 will drop to $625,500, not back to the original limit of $417,000 that was in place before the economy imploded.

But this does mean that any conforming loan that was approved in the range of $625,500 – $729,750 must close escrow before September 30th, or it will not be funded — hence the impetus behind B of A's move.


As of the original writing of this post, Bank of America has slightly revised its position on conforming loan limits.   It will still process loan applications at the $729,750 loan limit only for conforming loans with a minimum of 20% down.  That means that any FHA loans up to $729,750, or any loan with less than 20% will be capped at the anticipated limit of $625,500.

Deadline Ahead for All Lenders.

What's interesting about this news is Bank of America's decision to drop the hammer a full 90 days before the expiration of the program.   Considering that the vast majority of simple home purchases in this area close in about 30 days, this seems to be a very conservative approach.   A spot-check with Wells Fargo Bank revealed that they will still take loan applications for the higher limits with 60-day rate locks up to July 30, and those with 30 day rate locks up to August 30.  In reality, I would expect it to be very tough to land a $729,750 loan in late August since lenders don't want the liability of not being able to fund a loan if they miss the September 30 cutoff.

Talk to Your Loan Broker.

If you are in the market to purchase a home in the imminent future, and you are already pre-approved with a high-balance conforming loan, now would be very good time to touch bases with your loan broker to understand what your options are over the next 90 days — regardless of who your lender is.  Depending on how much money you plan to put down on your purchase, this upcoming change may have a big impact on your home-buying plans.

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  1. SC Mom on June 30, 2011 at 7:14 pm

    Do you see this affecting the value of San Carlos homes in the $900K and up range? Is the interest rate historically that much higher on jumbo loans?

  2. Chuck Gillooley on June 30, 2011 at 8:12 pm

    Those are excellent questions. First, I don’t see this affecting the values of homes above $900K because buyers in this range (by definition) are those who are putting down a minimum of 20% of their own money on the purchase, and there are attractive jumbo loan packages today that will fill the void for these exact buyers when high-balance conforming loan expires. The difference in rates between jumbos and conforming loans was over 2 points back in ’08 and ’09 — now the difference is almost negligible.

    The homes that run the greatest risk of a decline in value are those homes below between $700k and $800K. Currently, there is no provision with jumbo loans for buyers a 10% down payment like there is with conforming loans. That segment of buyers previously had a maximum buying power of about $810,000 under the existing conforming loan guidelines — but that buying power will be clipped to about $700,000 when the high-balance conforming loan limits reset to $625,500. That means that this segment of the market may lose some buyers until the banking industry comes up with a loan offering that address the sub-20% down payment buyer.

    Thanks for your questions.

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