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Jergler: O.C. could feel impact of federal loan limits

July 18, 2011|By Don Jergler

The so-called lending pipeline that has been clogged for so long, considered by many a top reason for lackluster home sales, may get worse come October — or possibly sooner.

The federal government has decided the size of loans eligible for government backing will go down in October. That's a step back from a temporary hike made three years ago, when Congress raised the maximum loan guarantee that Fannie Mae, Freddie Mac and federal agencies aimed at boosting the beleaguered market.

That move three years ago to hike the conforming loan limit made it cheaper for borrowers in more expensive housing markets to get mortgages, thanks to government guarantees that investors will receive payments on those mortgages, even if homeowners default. The change will take the maximum down from $729,750 to $625,500 in the more expensive housing markets.

Homeowners with loans too large to qualify for government-backed mortgages must seek a jumbo loan. Jumbo loans typically have higher interest rates and larger down-payment requirements.

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With the federal government's pullback from the lending market, some experts believe it could mean less people will qualify for jumbo loans, and they say now, when the housing market continues to languish for an extended period, may not be the best time to do this.

It also begs the question: Because so many Orange County properties seem to be within this range, could the area be more impacted than other Southern California regions?

"I think the buyers that are right at the $625,000 to $729,000 range will be affected most," said Cas Pinkowski, branch manager of Coldwell Banker Residential Brokerage in Newport Beach.

Pinkowski said he is encouraging as many people as he can to lobby their Congressional representative to vote for an extension on the higher loan limits.

In fact, some lenders are already warning borrowers that they will stop accepting applications for loans that exceed the new limits sooner than Oct. 1 to ensure that the loans are funded before the cutoff date.

"We heard that very report this morning from our in-house lender," Pinkowski said.

However, some experts think the impact on the Orange County market will be limited.

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