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Thursday, May 19, 2011
Sunday, May 15, 2011
Government Likely to Drop the Level at which It will Back Home Mortgages
By Chris Moles
Brokerage Counsel
Intero Real Estate, Inc.
A New York Times article this week revealed that the federal government is set to drop the levels at which it will back home mortgages in September. The sobering news identified that mortgages in Monterey County will likely be slashed by a third and re-set at $483,000. Other California counties will see similar cuts. This could negatively affect the California market because buyers will have to increasingly depend on private loans to purchase in this region.
Current Policy
At present, government backed loans for most bay area counties cap around $729,750. This is substantially higher than the national average and it reflects the above average cost of land in the bay area. Government backed loans are insured by the Federal Housing Administration, so lenders are somewhat protected from default. Lenders face less risk when making these loans to borrowers and borrowers are able to purchase more expensive homes with a smaller down payment and at a lower interest rate then they might otherwise expect. Suffice it to say that many government backed loans are offered at terms that would not be available in a purely private transaction.
The New Proposal
Democrats and Republicans in Congress seem to agree that the federal taxpayer should no longer bear the risk on loans that far exceed the national average for home mortgages. On September 30th, the Congress is posed to cut the levels for government backed mortgages across the board. The new caps will be re-set from county to county with most bay area counties seeing a 15% or so decline. Some anticipate that Santa Clara County’s new government backed mortgage cap may be set at $625,500 – representing a potential loss of more than $100,000 in the purchasing power of the average south bay buyer.
Of course, this could pull prices down as many local buyers are pushed out of the market. California borrowers will likely start to depend more heavily on private mortgages, and this means borrowers will be subject to greater scrutiny about credit worthiness and finances before securing an adequate loan. This also means that buyers may have to settle for higher interest rates and less favorable terms.
Some listing prices will have to decrease to reflect the diminished purchasing power of the average buyer.
The National Association of Realtors Lobbyists
NAR is presently lobbying against these measures in Washington. While it is clear that the government must remake its affordable housing laws, many Realtors argue that an overly simplistic policy based on the national average for home mortgages will have a disparate impact on those living in pricier regions of the country.
However, elected officials have become increasingly blunt in light of political pressure to address the causes of the last housing bubble and the subsequent mortgage crises. The Times reported that, according to a recent White House position paper on government backed mortgages, “Larger loans for more expensive homes will once again be funded only through the private market.”
Assuming Congress does as expected in September, this summer may present the best opportunity to buy and sell for a while.
We hope you enjoy this post by guest blogger, Chris Moles. Thanks, Chris, for providing Intero agents with the most updated legal information in your weekly post.
Brokerage Counsel
Intero Real Estate, Inc.
A New York Times article this week revealed that the federal government is set to drop the levels at which it will back home mortgages in September. The sobering news identified that mortgages in Monterey County will likely be slashed by a third and re-set at $483,000. Other California counties will see similar cuts. This could negatively affect the California market because buyers will have to increasingly depend on private loans to purchase in this region.
Current Policy
At present, government backed loans for most bay area counties cap around $729,750. This is substantially higher than the national average and it reflects the above average cost of land in the bay area. Government backed loans are insured by the Federal Housing Administration, so lenders are somewhat protected from default. Lenders face less risk when making these loans to borrowers and borrowers are able to purchase more expensive homes with a smaller down payment and at a lower interest rate then they might otherwise expect. Suffice it to say that many government backed loans are offered at terms that would not be available in a purely private transaction.
The New Proposal
Democrats and Republicans in Congress seem to agree that the federal taxpayer should no longer bear the risk on loans that far exceed the national average for home mortgages. On September 30th, the Congress is posed to cut the levels for government backed mortgages across the board. The new caps will be re-set from county to county with most bay area counties seeing a 15% or so decline. Some anticipate that Santa Clara County’s new government backed mortgage cap may be set at $625,500 – representing a potential loss of more than $100,000 in the purchasing power of the average south bay buyer.
Of course, this could pull prices down as many local buyers are pushed out of the market. California borrowers will likely start to depend more heavily on private mortgages, and this means borrowers will be subject to greater scrutiny about credit worthiness and finances before securing an adequate loan. This also means that buyers may have to settle for higher interest rates and less favorable terms.
Some listing prices will have to decrease to reflect the diminished purchasing power of the average buyer.
The National Association of Realtors Lobbyists
NAR is presently lobbying against these measures in Washington. While it is clear that the government must remake its affordable housing laws, many Realtors argue that an overly simplistic policy based on the national average for home mortgages will have a disparate impact on those living in pricier regions of the country.
However, elected officials have become increasingly blunt in light of political pressure to address the causes of the last housing bubble and the subsequent mortgage crises. The Times reported that, according to a recent White House position paper on government backed mortgages, “Larger loans for more expensive homes will once again be funded only through the private market.”
Assuming Congress does as expected in September, this summer may present the best opportunity to buy and sell for a while.
We hope you enjoy this post by guest blogger, Chris Moles. Thanks, Chris, for providing Intero agents with the most updated legal information in your weekly post.
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