Will new mortgage caps kill housing recovery?

Limits on certain mortgages will make it harder for some people to buy higher-end homes.

By Kim Peterson Sep 27, 2011 3:08PM
It's getting harder to buy pricey homes now that lower mortgage caps are on the way.

The limits are set to kick in Saturday, and it's unclear what the changes will do for the housing market and the economy. At issue are the 90% of new home loans guaranteed by the government. What is the maximum mortgage the government will support?

When the economy was tanking in 2008, Congress raised those limits in order to boost the housing market, The Los Angeles Times reports. That helped people buy more-expensive homes, because lenders knew they could count on Fannie Mae, Freddie Mac and the Federal Housing Administration for backup.

Raising those limits was always meant to be a temporary move. But people say now is the wrong time to push the reset button.

"This is just going to kill us," the president of the California Association of Realtors told the Times. "You don't want the real-estate market to get any worse than it is, and it surprises me that our congressmen and senators don't understand that."

The following video notes that home prices were down 3.3% in July from the previous year.

Post continues below.
The caps vary by county. In Los Angeles County, for example, FHA borrowers will see the loan limit drop to $625,500 from $729,750, the Times reports.

In Washtenaw County, Mich., the cap will drop to $271,050 from $345,000, according to The Detroit Free Press.

The result? Some home sellers will have to drop their prices or search harder for qualified buyers, writes Susan Tempor of the Free Press.

Fannie and Freddie loans will also see new limits, but they won't go below the old jumbo-loan cap of $417,000, the Times reports.

These changes won't affect most homebuyers -- just the ones pushing up against the limits. Even with the caps in place, the California realty group still expects a 1% increase next year in home sales in the state.

"We are still technically in recovery," the group's chief economist said, according to the Ventura County Star. "It's very clear that this market is struggling to gain momentum and move forward."

6Comments
Sep 27, 2011 4:19PM
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I had a lot of equity in my property and home for many years and still am able to make my payments on time. But due to the Real Estate bubble burst my property and home equity has been erased and because of that I will now not be able to qualify for these so called record low interest rates. How about putting a program together for people that do pay their bills and allow them to take advantage of today's rates?

Or should I just allow my property to go into default for me to qualify for assistance toward refinancing for lower rates at a lower price when I buy my property

 

Sep 28, 2011 4:03AM
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With bankrupt banks holding onto millions of REO(Real Estate Owned foreclosed homes not on the market yet), 1 in 9 homes in the U.S vacant,and 1 in 4 homeowners enjoying negative equity,whoever said there was a housing recovery going on?
Sep 27, 2011 6:51PM
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I agree with you dutch155.  There are many, many people who currently have outrageous rates, like 6.5% and higher, that would benefit from refinancing.  Not that I am a big government intervention supporter, but in a case like this, it would be appropriate.  All banks must allow refinancing, even if underwater.  If there is a  2nd, that lender would be required to subordinate or lose FDIC protection.  That would cause the bank to go away and go away quickly.

 

Refinancing a principal balance of $350,000 from 6.5% to 4.5% would save the borrower $583.33/month in interest.  That would be huge for lots of people.   Plus it would keep us title insurance people busy, busy, busy!!

 

PS. I know that a 6.5% interest rate is not high historically but in September 2011, it is high.

Sep 28, 2011 9:16AM
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There's no recovery, so the answer to question is NO, No, Noooo - you cannot kill something that does not exist or is already dead.
Sep 28, 2011 10:27AM
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One thing that hasn't changed is the real-estate  professionals continue to lie. The most crooked industry known to man. Where there is money there are crooks nearby.
Sep 28, 2011 10:30AM
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The Banks don't want to help anyone they just string everybody out for at least a year or so and they keep asking for the same documents over and over again until the Homeowner gets so frustrated they walk away. So much for Mortgage Modification help
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