Loan Increase Could Help More Than Checks

In San Diego County, the nation's economic stimulus plan could mean more for home buyers in the form of cheaper loans than it will for those waiting to spend their tax rebates.

The plan, signed by President Bush on Wednesday, is an attempt to jump-start the economy and avert a recession. Among its provisions are an increase in the limit on large home loans and rebate checks ranging from $300 per person to $1,200 for a couple, depending on income earned.

Real estate analysts agree that the increase in the maximum value of government-backed loans - called jumbo loans -- is a big deal, but whether it will hasten a housing recovery is a matter of debate. Aimed at high-cost areas such as San Diego, the change makes it cheaper to borrow large amounts of money.

For example, a fixed-rate jumbo loan on a $600,000 home with a 20 percent down payment could have carried a full percentage point penalty last year. Under the new loan limits, that loan could be refinanced as a conforming loan and save the borrower more than $300 a month.

Therefore, the increase has spurred hopes that it will spark home sales by easing the barrier to securing a mortgage.

"I wouldn't say it's quite time to pop the cork on the champagne bottle, but it's really a wonderful thing," said Don Marginson, a Rancho Bernardo mortgage broker who lobbied politicians to enact the loan-limit increase.

"I'm so excited. We have loads of people who want to do loans, but there isn't the (availability of lending) product," he said.

But some real estate analysts said they are hesitant to predict that the loan-limit increase will bring about a sales jump.

"You'll probably have a one-year stimulus in the form of people being able to buy at lower interest rates," said Nathan Moeder, a principal with The London Group, a San Diego real estate consultancy firm. "But it won't be a lot of people rushing to the market because they think prices are still going to fall."

Before the plan was approved, Fannie Mae and Freddie Mac - private lenders chartered by the government - would not endorse loans over $417,000, also known as the conforming loan limit. Anything above was called a jumbo loan and only available through private lenders.

After an August credit crunch precipitated by a boom in foreclosures, jumbo loans carried interest rates a full percentage point higher than conforming loans and were scarcely available.

Because the programs originate with the government, they are considered safer among investors, which in turn makes them more available and cheaper than larger loans from private banks.

Easier To Refinance, Too

Analysts also said the increase will make it easier for homeowners to refinance jumbo loans into conforming ones with lower interest rates.

Mortgage brokers, home builders and real estate agents have long pushed for loan increases to help buyers secure financing for San Diego's expensive market. North County's median home price has been higher than the conforming loan limit for more than four years, according to reports by a local Realtors association.

"It's really frustrating saying people here need to live by the same financial limit as people in rural Arkansas," said Rep. Brian Bilbray, R-Solana Beach, who voted for the economic stimulus plan.

"It's something that needed to be corrected 10 years ago," he said.

The stimulus package allows for loans up to 125 percent of the median price in high-cost areas. The prices will be determined later by the U.S. secretary of Housing and Urban Development.

North County's median price in January was $562,500. If that median were used, home buyers could secure Fannie and Freddie loans up to $703,125.

Time Limit In Play

But some analysts see even more of a sales boost from the increase in mortgages insured by the Federal Housing Administration, a government program aimed at getting low-income borrowers into homes.

Those loans, which require as little as 3 percent for a down payment, will use the same guidelines to adjust upward. They previously had a limit of $362,750.

"I think it's one of the best things that could have happened at this point," said Robert Rivinius, president of the California Building Industry Association.

But Rivinius and other housing industry insiders are still holding their collective breath. The loan increases will expire at the end of this year.

That leaves little time for brokers to put loan packages together and guide interested buyers through the home sales process, they say.

Another report, released today by the California Budget Project, suggests that the housing market will not recover until income catches up with the meteoric rise in home prices since 2000 and the increase in loan limits will not help much.

"I think that is not the answer to California's housing affordability problem," said Jean Ross, executive director of the California Budget Project, a nonprofit research organization. "Middle-income families, (a) can't afford it, and (b) would be reluctant to take on that amount of debt even if financing is available."

Another nonprofit organization, The Heritage Foundation based in Washington, also opposes the conforming loan limit, but from a philosophical standpoint, not an efficiency one.

"You're greatly expanding the role of the federal government into the mortgage market without any particularly valuable objective at hand," said Ron Utt, senior research fellow with the foundation.

Congressman Darrell Issa, R-Vista, voted for the economic stimulus plan. San Diego's Duncan Hunter, R-El Cajon, was one of a small number of dissenting votes, which passed the House by a 385-35 margin.

A spokesman for Hunter's office said the congressman supported an increase in loan amounts, but voted against the package because of its focus on consumer rebates rather than business incentives.}

(####)

______Home | In the News List_