Doug, what about those who bought five or six years ago and have made their payments all along and have good credit? If they sell right now, they will be able to salvage some of their equity and use it as a down payment, won't they? So if they have access to a conforming loan, this is good for those buyers, isn't it?

Doug, it may have not been clear in my post, but what you said is what I meant - that homeowners' ability to refi because they have 20%+ equity from buying several years ago (and without doing large cash-out refi's) is the only positive I see playing out.

I'm impressed by the points you've raised, Doug and dg, and I'm going to do a post about them and put it up in a couple of minutes. Please check it out and feel free to comment, you may feel it needs a bit of tweaking or elaborating!

dg, I hope you are right. Also, you write (about some refinancing) that, "I think this is the only significant positive effect that can play out if passed". This is only a positive for home sellers/owners, not buyers. Therefore, there is not one positive thing for home buyers. So to all the politicians, MSM and online pundits who are raving at what a great thing this is for buyers, you are wrong, and not only wrong a little bit, but wrong in that it will ultimately HURT home buyers.

If Dubya ultimately signs the proposed economic stimulus package scheduled to be on his desk by mid-February, there could be a noticeable bump in local refinancing activity, but don't expect the changes to help the intended recipients like its authors think.

Problem 1:
What they don't seem to understand is that the people in real trouble cannot qualify to refinance using these conforming loans due to much tighter qualifying restrictions and a maximum 80% loan-to-value ratio (i.e. 20% down payment for purchase or 20% equity for refi). The ones in trouble purchased in the last 12-18 months and put little to zero down to begin with. Even if they put 15-20% down, they defintely have less than that in equity now anyway, so there is no refinance option for them with conforming.

Problem 2:
Of the people who are looking to buy their first home or who have been waiting on the sidelines to get back in the game, most are not looking to, or are unable to, put 20% down. You could argue that point, but it's definitely the minority of the potential buyers out there. And don't forget conforming loans carry much tighter restrictions than non-conforming jumbo loans (i.e. 35% maximum debt-to-income ratio, full documentation of employment and verification of assets). How many of the buyers in recent years could then or can now legitimately meet these terms? Yep, you know the answer - not many!

Now, for people who bought 4 to 5+ years ago and are still in that home likely have 20%+ equity and are good candidates for refinancing if they have not already done so, which many have. I think this is the only significant positive effect that can play out if passed. But again, it doesn't help the troubled recent buyers and those who have already refinanced to the moon.

This thing will have a lot less effect than the geniuses who put it together think it will. And depending on how the markets react and adjust to this over the coming weeks and months, it might not even carry the nice low interest rate spread over jumbos as it does now. Some smart people are already predicting that.

Doug, one of the things you said jumped out at me: "Even with current prices, they are not even close to being affordable based on incomes in this area." Another reader commented on my earlier post that +$800K prices are so high, few people can afford them anyway. Sounds like the two of you are on the same page with that? Am I understanding correctly?

I agree with you both on this point. I believe the Contra Costa County median income is around $60,000, while the median price of a home in CoCo County is around $620,000. So who can afford a house?

But what about all those condos I see on the market in the $300,000 range? Those are affordable, no?

"So it’s good news for homebuyers with good credit, a nice down payment saved up and the ability to meet the tougher underwriting standards now in place. That plus falling home prices and the Federal Reserve’s emergency rate cut could help folks who have long hungrily eyed the housing market hereabouts to no avail to finally make their move."

Sorry, but this is in no way good for buyers with a significant down payment because it will drive up or at least stabilize the decline in housing prices that has been happening due to being able to refinance more easily, and getting higher bids due to being able to buy more house with the increasing conforming limit. Even with current prices, they are not even close to being affordable based on incomes in this area.

Secondly, it is never good to buy when interest rates are low, because home prices will rise to take into account the fact that people can afford more house. Remember that it's always possible to refinance lower later on. Buying at a low interest rate and higher home price means your stuck. It's always in the interest of the buyer with a significant down payemnt to buy a lower priced house with a high interest rate because when interest rates drop at a later stage they can refinance. Not to mention the tax benefit of having a lower tax basis for yearly property taxes.

OTOH this is great news for home sellers who will be able to sell at a higher price, or refinance! Congrats home sellers! Too bad home buyers, maybe next year.