Pleasanton Weekly

Real Estate - July 1, 2011

Higher down payments, mortgage rates forecast for October

Thousands could be shut out of homeownership, Realtor group warns

by Jeb Bing

More than 30,000 California families will face higher down payments, higher mortgage rates and stricter loan qualification requirements if conforming loan limits on mortgages backed by the Federal Housing Administration (FHA), Fannie Mae, and Freddie Mac are reduced beginning Oct. 1, according to analysis by the California Association of Realtors.

"By reducing the conforming loan limit, thousands of California home buyers will be shut out of homeownership," said CAR President Beth L. Peerce.

"The higher mortgage loan limits are critical to providing liquidity in today's housing market and are essential to our housing recovery," she said. "We urge Congress to maintain the current limits and make them permanent to provide homeowners and home buyers with affordable financing and help stabilize local housing markets."

Barring congressional action, the maximum FHA, Fannie Mae and Freddie Mac conforming loan limit will decline to $625,500 beginning Oct. 1 from the current $729,950 limit, though the majority of counties will fall far below the $625,500 maximum. The conforming loan limit determines the maximum size of a mortgage that FHA, Fannie Mae and Freddie Mac Government-Sponsored Enterprises (GSEs) can buy or guarantee.

Non-conforming or jumbo loans typically carry a higher mortgage interest rate than a conforming loan and require a higher down payment, increasing the monthly payment and negatively impacting housing affordability for California home buyers, CAR said.

Under the new GSE loan limits, Monterey County would see the greatest drop in the loan limit at $246,750, followed by the counties of San Diego ($151,250), Sonoma ($141,550), Solano ($140,500), and Napa ($137,500).

Under the new FHA loan limits, Monterey County would see the greatest drop in the loan limit at $246,750, followed by Merced ($201,450), Riverside ($164,650), San Bernardino ($164,650), Solano ($157,300), and San Diego ($151,250) counties.

CAR and the National Association of Realtors have long advocated making permanent higher conforming loan limits. As a result of CAR's and NAR's efforts, in 2008, Congress temporarily raised the conforming loan limits from $417,000 to $729,750 and has extended them annually through fiscal year 2011.

Regionally, Marin County would be impacted the most, with more than 12% of home sales rendered ineligible under the lower GSE loan limit, followed by Contra Costa (11.5%), San Mateo (10.7%), San Francisco (9.9%), Monterey (8.8%), San Diego (8.2%), Sonoma (7.9%), and Santa Clara (7.8%) counties.

Under the lower FHA loan limit, San Francisco County would be impacted the most, with more than 14% of home sales rendered ineligible, followed by Santa Cruz (13.9%), Orange County (13.3%), Marin (13.2%), San Mateo and Ventura (both at 12.7%), Santa Clara (12.2%), San Diego (11.9%), Alameda (11.8%), Riverside (11.5%), and Contra Costa (11%) counties.

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