While industry groups furiously lobby, it’s now t-minus two weeks until the super/jumbo conforming loan limits that provide for federally backed mortgages up to $729,750 in high cost areas like San Francisco are set to expire on September 30.
As we first reported two weeks ago, it would appear as though Obama’s administration has changed its position and would now support a two-year extension despite the Treasury Department’s recommendation to let the limits reset lower.
Co-sponsored by California Senator Diane Feinstein, the Homeownership Affordability Act of 2011 which would extend the higher loan limits through the end of 2013 has been referred to the Committee on Banking, Housing, and Urban Affairs but hasn’t made much progress since being introduced at the beginning of August.
We’ll keep you plugged-in.
∙ If Lowering Rates Isn’t Working, Perhaps Increasing Limits Will [SocketSite]
∙ Conforming Loan Limit Extension Gains Obama’s Support [SocketSite]
∙ Homeownership Affordability Act of 2011 [loc.gov]
It takes more than two weeks to fund a loan, so you’d think if they were certain they were going to extend, they would have done it by now so as to not cause any hiccups.
I’d be as surprised as anyone here if they don’t extend it, but it appears for now that it’s facing some opposition.
Clearly the buyers of 171 Valley and 2531 Washington were rushing to get these deals closed so they could lock in that loan. Phew. Sucks for those that lost out on those homes that didn’t bid the highest. 🙂
Obviously I’m joking to some extent and these will be some impact on certain folks but time will tell how much of an impact it will have on the broad Prime SF market. I suspect it will be marginal.
So what is the limit returning to from the higher $729K limit?
I’ll be as pleased as anyone not currently attempting to sell a home in “the broad Prime SF market” for more than was paid for it if the limit is not extended, but I concur with eddy that the impact will probably be marginal.
No one buying a 700K home in this city really needs a federally backed mortgage.
“No one buying a 700K home in this city really needs a federally backed mortgage.”
Agreed. Even $417K is somewhat aggressive for much of the nation.
“No one buying a 700K home in this city really needs a federally backed mortgage.”
Well, that depends on what you mean by “really need.” It is the case that a number of would-be buyers in this city will be unable to buy a 700k home without that federally backed mortgage because they can’t meet the stricter income, down payment, and interest terms that private lenders require.
So does anybody “really need” a 700k home? No. Do lots of people “really need” looser federally-backed funding in order to be able to buy the 700k home they want? Yes.
The best argument anyone could make here is that this will drop the average selling price of homes / condos that fall between the upper range and the older ranges; that would have a trickle impacts on all other housing stock thereby causing all real estate prices to decline by some percentage. And while this may certainly be true in areas where these limits impact the majority of transaction; the factor value for prime sf real estate will be statistically insignificant.
“So does anybody “really need” a 700k home? No. Do lots of people “really need” looser federally-backed funding in order to be able to buy the 700k home they want? Yes.”
Another question is whether those people would have to buy $700K homes if there weren’t federally-backed mortgages. Federally-backed mortgages raise the price of housing.
Private lending could easily be looser if people paid higher rates.
@DCR
“So what is the limit returning to from the higher $729K limit?”
The limit will be reduced to $625,500 without the extension. In fact the new lower limit has already been implemented by many banks already for new applications of FHA loans since the loan has to close before October 1 to qualify for the $729,000 level. I’m not sure if the jumbo loan limit has also already been effected or not.
As someone who’s sweet spot for a home is in the $600k-$800k range, I will admit that I’m hoping this does not go through. I just read in the WSJ that the House GOP is not on board with this due to the fact that it will benefit mainly coastal, expensive regions. Seems logical.
Whereas before 3.5% down could buy you a $755k home, now it will buy you a $647k home. Do those buyer cough up the extra $108k out of pocket? I’m guessing not.
@rabbits, lettuce know how this works out for you. 🙂
“Whereas before 3.5% down could buy you a $755k home, now it will buy you a $647k home. Do those buyer cough up the extra $108k out of pocket? I’m guessing not.”
no, if yo still want to buy the $755K house, you just need to put 10-20% down now for a normal private loan. Which is really not that big of a holdup considering the monthly payment on that size loan is pretty brutal — if you can afford that monthly cash flow, why not put a bit more down??
in general with it only dropping $100K off the conforming limit, this wont have that big of an impact…
Big V… maybe something was lost in translation, but I’m quite certain that most buyers in the $600k-$800k range that do not currently have 20% down won’t suddenly find it when the limit gets reduced. Are there even 90% LTV private loans out there right now?
rabbits are you referring to FHA with the 3.5% down comment?
20% with regular leaders with conforming loans now right?
A lot of people around here have been refi’ing their jumbo loans. Typical down payment (or equity) required seems to be about 30%, and 40% for condos. Rates are not a ton higher than conforming rates (.50-.60%), but that makes a fair difference on a high loan.
Let’s just be clear, here. I did NOT say that “no one ‘really needs’ a 700k home”. I wrote that no one who really wants to buy a 700k home and has the means to do so really needs a federally-backed mortgage to do so. There is no evidence of a dearth of financing in the private market at that price point or thereabouts, it just costs more in one or more ways.
As I said above, although I’d like it to be otherwise, I think the overall effect on the marketplace will be marginal and there’s a half decent Master’s thesis in real estate economics waiting on someone in the near future by analyzing what happens after the limits come down. sfrenegade’s contention (which I agree with) that “Federally-backed mortgages raise the price of housing” will turn into a testable hypothesis for anyone with a good grasp of statistics.
A.T. says “…a number of would-be buyers in this city will be unable to buy a 700k home without that federally backed mortgage”. I’ll concede that the number of such buyers is larger than zero or one, but is it a large enough number that the marginal benefits of the program’s higher limits outweigh the marginal costs of it as well as the substantial risks to taxpayers?
Without benefit of data, I’d say that number of such buyers is small, and they aren’t going to keel over and die if they have to buy a smaller house or one not in what eddy would term “the broad Prime SF market”. I also think people in this category have access to substantial resources, so in answer to rabbits, above, I’d say that those who don’t already have the marginal $108k in cash on hand can come up with it pretty easily by taking out a second or borrowing it from family members.
most of the large lenders stopped offering the higher limits anywhere from a month ago to 6 months ago. so if there is any impact you should already be starting to see it. however, spreads in interest rates btwn all variety of loans is minimal. apparently the kicker is that you will need more cash to put down – but your interest rate will be largely unaffected. my guess is this will have very little noticable affect compared to other market factors like the low rates themselves, jobs, inventory, etc.
The extension is dead – not in any bill that could take effect before the higher limits expire on 10/1.
Congress could, of course, up the limits again in new legislation, but raising the limit rather than just extending it is a more uphill battle.
I think the main factor here is the interest rate, and down payment change that will/is occurring — not the 100k change in conforming limit. For a 660k 1 month ago you would have a $3200/mo non impounded payment. Now in some areas this amount is a jumbo loan and a 0.5 to 1% rate increase making your payment 250-400 more/month. Extrapolate that over 30 years and well you do the math. The tighter private lending (let the market run itself again theory) will further decrease home prices which can be good or bad for you whether your a buyer or seller of course.
Sorry but a tightening of jumbo is the opposite of what’s currently ocurring.