[quote=AN]You make a very good point. Do you think TPTB actually will let it happen?[/quote]
I think the odds are greater than 60%. At this point, I suspect the banks have been mostly bailed out of their mortgage-market mistakes. However, NAR and other real estate lobbying interests will be pushing hard to keep GSE limits where they are at currently. NAR will be up against the Tea Party. I think the Tea Party has a decent shot at winning this particular battle.
The threat of upcoming conforming limit decreases is also pulling demand forward:
Homeowners whose mortgages are too big to qualify for a government-backed mortgage must seek a so-called jumbo loan, which often carry higher interest rates as well as larger down-payment requirements, sometimes more than 20%.
“Sellers are going to have to reduce their prices if borrowing costs rise,” said Scott Sheldon, a loan officer with First Cal Mortgage in Petaluma, Calif.
One of Mr. Sheldon’s clients, Ed Barr, has been pre-approved for a $662,000 loan backed by the FHA, the largest mortgage the agency can insure in Sonoma County, Calif. He is racing to close a sale before the limit drops to $520,950.
Mr. Barr, who owns a wine-making machinery company, said he has excellent credit but a recent divorce left him with little cash for such a purchase. “I don’t have any other alternative,” the 48-year-old said. Without the loan backed by the FHA, which allows for down payments as low as 3.5%, “the sale won’t happen.”
Scaling back loan limits underscores a broader challenge facing the government: It wants more private players to hold mortgage risk, but it doesn’t want to destabilize fragile housing markets.
Craig Van Sant is looking to pay $500,000 for a home with a $20,000 down payment in Rancho Cucamonga, Calif. Once the FHA limit drops to $335,000, he would need to more than double his down payment. The only upside, he said, is that “home values slide even more, allowing us to buy more house, if we can pull together all the cash.”
My sense is the public is sick of all the government bailouts to homeowners and this makes it more than likely that the conforming limits will go down in October as scheduled.
