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Buyers should ready for loan limits

Housing: A look at new restrictions being placed on federally guaranteed loans

Posted: September 28, 2011 1:55 a.m.
Updated: September 28, 2011 1:55 a.m.
 

Lower home-loan limits for guaranteed loans backed by the Federal Housing Administration, or FHA, Fannie Mae and Freddie Mac go into effect Saturday.

Limits vary by county and state, but areas with a sizeable mortgage market and a large number of high-priced properties, such as Los Angeles County, could be affected the most.

The federal government-loan limit set to go into effect Saturday is $625,000, which will force some buyers, as well as those wishing to refinance into jumbo-loan status, resulting in the need for bigger down payments and higher costs.

There will be a number of effects locally, said Fred Arnold, with American Family Funding. It will affect people who want to refinance. Being able to lower their mortgage payments would infuse money that homeowners could put back into the economy, he said.

Home buyers
“We anticipate about 10 to 15 percent of borrowers in the area will be affected,” Arnold said.

On the purchasing side, Arnold estimates the greatest affect will be for home buyers looking at homes roughly between $650,000 to $810,000 range.

 

As homes in this price range will no longer be eligible for FHA-backed loans, which allow for as low as a 3.5-percent down payment, there will be fewer home buyers who can afford to make 10- and 20-percent down payments, Arnold said.


The fact that the Fannie Mae and Freddie Mac are even considering cutting the size of their loans shows that the government is absolutely clueless at to the severity of the current real estate market, said Sam Heller with Keller William VIP Properties in Santa Clarita.

“This is like taking water from a dying man because ‘he is dying anyway; why waste the water?’” Heller said.

Home-sellers
The limits will also affect sellers.

“They are going to have to either reduce their sales price to conform with the FHA limits or wait for that conventional buyer or a buyer that doesn’t mind paying for the jumbo rate,” said Connor MacIvor with RE/MAX Realtors of Santa Clarita.

Buying a property more than the $625,000 limit will need to secure conventional loans, MacIvor said. Even still, there will be a marginal impact in the SCV area.

Local market
As of today, there are 1,338 total active “for sale” listings on the market in the SCV area, MacIvor reported.

Applying the new FHA limits, the total number of homes with a listing price exceeding the $625,000 cap is 136. That means 1,202 properties listed today still qualify, he said.

“With this new loan limit, I know we are going to see marginal impact with the borrowers in the higher amounts,” MacIvor said.

“It has been our experience most borrowers in that range also have the ability to generate conventional type lending.”

The decrease in maximum loan limits might have a significant impact countywide, said Robert Mickalson with Realty Executives in Valencia, but he agrees that the effect on the local market will not be as great.

“In Santa Clarita, the localized effect should be minimal,” Mickalson said. “The majority of homes selling in Santa Clarita are half the amount of the new loan limits.”

Market recovery
The long-awaited recovery in the real estate market could be affected, as well, as prices begin to rise again.

The biggest concern centers around whether it will prevent some homeowner from moving up to a larger, more expensive home, Mickalson said.

“If they choose not to buy, that could impact their decision to sell their current home. If they don’t sell their home, it could limit the inventory supply, and further limit choices for first-time home buyers entering the market,” he said.

Realtor Sam Heller says he has already received some calls from clients saying that this new ruling knocks them out of the real estate market and he confirms that it does.

Concern has even been expressed on an international level, Heller, who owns a home in Israel, said.

Recently in Israel to meet with dignitaries, Heller said he and his wife had been invited to lunch with Israeli President Shimon Peres at his private home.

Upon learning Heller was a Realtor in the United States, he was invited to interview some of Israel’s top builders, agents and contractors, he said. The Haaretz, an Israeli newspaper, got wind of his trip and began asking Heller about the U.S. Realty market.

“The whole world is worried about it because what happens in the USA affects the whole world,” Heller said.

SCV

In the end, adding insult to injury in the real estate market doesn’t help speed up recovery in the market experts agree.

The good news is that sales of single-family homes and condominiums in the SCV rose significantly in August. Sales on homes were up 19.4 percent from the prior year, the third consecutive monthly gain and the best monthly total since the record low set in January 2008.

Both Meena and Heller point out the last thing the market needs, just as its gaining momentum locally, is more negative press.

“I believe this will have a minor impact on the Santa Clarita Valley,” said Jeff Milet with Augusta Financial.

Liquidity is not the concern now that it was in 2008, when the “jumbo” loan market basically shut down. Milet said his firm has a number of institutional investors that consider backing these loans for investment reasons.

Either way, these are “crazy days” right now with historic low mortgage rates and attractive home prices, Milet said.

jadkins@the-signal.com

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