Home Loan Limit Changes…. Coming to a City Near You!

 If you’re in the market for a home and you’re planning on getting a bank loan over $417,000, listen up!  You may have until only this July to qet one!    Why?  There’s a new countdown going on…a proposed move by the Government that especially threatens the viability of some Tri-State housing markets,  areas that tend to be more highly-priced compared to the rest of the country.
 
The countdown relates to Fannie Mae and Freddie Mac (the two “too-big-to-fail” mortgage financiers) which most banks follow so as to be able to “sell” them the loans (the banks make to homeowners)  on the secondary markets.  Presently they will back a loan for up to $729,750 in high-cost states like NJ/NY & CT. This enables lenders to make loans this large. Without it, lenders would likely skip the risk.
 
The amount was raised to $729,750 about three years ago in order to help borrowers in high-cost areas get home loans. When you live in a place where the median home price is in the $500,000 to $1M range, it’s a much-needed aspect to being able to buy a home. Note: Previously, the loan limits had been $417,000 everywhere in the U.S. before the economy tanked in 2008.  As previously, when this “jumbo conforming” figure expires, the new limits would be determined by various formulas – so they’ll be different for each area.
 
If the present limit rolls back loans of this size and scale will be a lot costlier, carry higher interest rates, and demanding down payments of up to 30% , a  sizable chunk of cash that’s unrealistic for a lot of borrowers.
 
Everyone, the time has come to debate lowering the limit once again. If the lowered amounts being talked about go through, it means that in a places throughout NJ and NY, for example, the government would only back a loan for up to $483,000    If you want to read more about this, check out the NY TIMES article on the topic here

But, basically, it’s going to pull a whole bunch of buyers out of the market and put downward pressure on prices.
The two sides of the debate go like this:

  1. Why should home buyers in high-cost areas be penalized? Moreover – why should sellers also be penalized by taking a large group buyers out of the market?  This move would substantially slow down recovery efforts in the market. Private lenders will likely not be able to bear all the risk to keep these loans in the market at the same pace as previous years when they were backed by Fannie Mae and Freddie Mac.Vs.
     
  2. Why should the government continue to back high-priced mortgages? The private market will still be able to make loans to this portion of buyers in high-cost areas. Tax payers don’t want the government’s role in the mortgage market to be as big as it has been. It costs them too much money.The topic presents a difficult choice.  We don’t think we should be kicking the market while it’s down and certainly lowering limits to the extreme example would cause a hardship. But we also agree that the government’s role in the mortgage market should be minimized a bit to take the strain off tax payers the next time things “go south”. .
     
    The National Association of Realtors is lobbying to extend the loan guarantees. We think this is the right way to go. Let’s at least let the markets ride out the rest of the downhill battle and deal with foreclosures. Then we can start to lower these limits to more reasonable levels for both sides. Doing it too soon, though, would be perhaps the riskiest move to come out of regulators thus far.
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