BAP Blog U.S. will lower the size of mortgages it will guarantee

This change will result in higher costs and bigger down payments for many home buyers. In California, real estate professionals are bracing for a hard hit as buyers learn they may no longer be able to afford the higher-priced homes they had been considering. Your Government is about to take a first tentative step out of the mortgage business. It will lowering the size of home loans that the federal government will guarantee. This change is already hitting California neighborhoods with higher costs and bigger down payments. This downward adjustment has ignited outcries from California politicians and sparked a campaign by the state's largest real estate group and its national partner to extend the higher limits. The argument is that the Golden State's housing market and economy can ill-afford another setback to recovery. According to Beth Pierce, president of the California Association of Realtors: "This is just going to kill us. 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." Washington is focused on slashing deficits and few observers predict any further extension of the 3-year-old policy that was intended to throw a lifeline to higher-priced housing markets. Most of the nation's biggest mortgage lenders have already stopped making loans at the old limits, concerned that they will not be able to get them off their books before the official Saturday deadline. The move to lower loan limits is the first major effort by the federal government to reduce its footprint in the mortgage market. The government currently supports about 90% of new mortgages which is essentially propping up the home loan market after credit dried up and home sales plunged in the wake of the subprime mortgage crisis. FHA borrowers in Los Angeles and Orange counties will see loan limits drop to $625,500 from $729,750, a decline of $104,250. Other pricey areas facing the same change include San Francisco, New York and Washington. Under the new FHA loan limits, Monterey County would see the biggest drop in the limit, falling $246,750; followed by Merced, down $201,450; Riverside, falling $164,650; San Bernardino, declining $164,650; Solano, dropping $157,300; and San Diego, down $151,250. Fannie Mae and Freddie Mac loan limits will also follow those changes except when they call for dropping the limit below $417,000, which was the old jumbo limit for Fannie and Freddie loans. When that happens, the limits will drop to no lower than $417,000. If you feel strongly about this please contact your government and let them know how you feel. This is a very important issue.