From CNN on Freddie Mac’s announcement:

The McLean, Va., company said the financing is part of the Economic Stimulus Act, which temporarily raised Freddie Mac’s conforming loan limit to $729,750 from $417,000. The purchases are limited to 224 high-cost markets where median home prices exceed its original loan limit, the company said.

Freddie Mac intends to buy jumbo mortgages from Wells Fargo & Co. (WFC), JPMorganChase & Co. (JPM), Citigroup Inc.’s (C) CitiMortgage, and Washington Mutual Inc. (WM). The jumbo mortgages purchased by the housing finance giant will be full documentation loans, that is, not Alt-A mortgages that lack verification of income and assets, said Brad German, a spokesman at Freddie Mac. It may buy mortgages dating back to July 1, 2007, in line with guidelines under the Economic Stimulus Act, he added.

Freddie Mac’s naming of the top institutional investors is interesting. I’m not aware of this being an inclusive list but it is curious that they singled out those institutions explicitly in the announcement. If anyone knows if this is exclusive to the above-mentioned banks let me know. If that is the case it certainly does constrain originators and consumers looking for these loans.

No appetite for conforming jumbo?

The more interesting part of this story is that the new jumbo conforming loans are already a ‘non-starter’ in the finance world. With interest rate spreads of 75 to 100 basis points above the ‘conforming’ conforming rates there has been little volume for any of the new products.

In fact, Mr. Mortgage is calling the new products a ‘bust’ already. From Mr. Mortgage’s post on the bust of Fannie and Freddie jumbo conforming loan offerings:

Just got off the phone with three of my top contacts at three of the nations leading mortgage lenders/banks. These programs are not selling at all. The volumes are very low. Banks are highly disappointed. The difference between a standard Fannie/Freddie (Agency) is roughly 75 to 100bps depending on the lender. Agency 30-yr fixed are roughly 6.25% with no points and Agency Jumbos are roughly 7 to 7.25%. Mortgage rates have gone up about .375% in the past few days.

In a nutshell, the new Fannie/Freddie jumbo programs are already a bust. They offer nothing to most people other than the few with perfect credit, who have a large down payment and make tons of money.

Pushing on a string

As we have discussed before efforts to improve liquidity are like pushing on a string. The government can roll out program after program but the fact of the matter is that we are not in a liquidity crisis (although Wall Street is) but a solvency crisis.

From Mish Shedlock’s excellent blog post on the subject back in January:

The crisis we are in now is a solvency crisis, not a liquidity crisis. There are no bigger bubble to be blown that will provide jobs and allow consumers to pay debts.

People have maxed their credit, are in near-zero or negative-equity positions and no matter what loan limits are or how much Fannie and Freddie can buy there won’t be a ’saving’ of the housing market. (Which I think is a good thing.)

Source: By Blown Mortgage