Home prices continue to climb, but the U.S. government is
keeping a lid on the size limit for federally backed mortgages,
posing problems for home buyers in many pricey markets.
The Federal Housing Finance Agency on Wednesday said
mortgage-finance giants Fannie Mae and Freddie Mac in most markets
next year can back only loans of $417,000 or less. It will mark the
11th straight year that limit has been in place.
The highest-cost areas, which include cities such as San Jose,
Calif., San Francisco and New York, will keep a limit of $625,500,
while 39 counties will see increases of $5,750 to $34,500.
In the first nine months of the year, so-called jumbo
mortgages—those that exceed the government limits—made up nearly
19% of the market, according to trade publication Inside Mortgage
Finance. That was up from a low of 5.5% in 2009 and is the highest
market share since the government last raised the loan limit in
2006.
In most parts of the U.S., where the median home price is
$219,600, the federal mortgage limit isn't an issue. But in some
California cities and others with fast-rising home values, the
limit is starting to weigh on the market, real-estate agents and
economists say.
"If we don't get an increase in the high-cost loan limit, it's
going to be very disappointing," said Leslie Appleton-Young, chief
economist for the California Association of Realtors, before the
new limits were announced.
The biggest 2016 limit increases in dollar terms occurred in the
Denver area, where home prices have risen 11% in the past year,
according to S&P Case-Shiller. Many counties around Nashville,
Tenn., also will see increases.
Many hot housing markets in California hit the maximum $625,500
limit before this year and as a result have seen more borrowers
turn to jumbos.
More than half of San Jose's for-sale listings in September have
asking prices that would require a jumbo loan assuming the borrower
made a 25% down payment, according to an analysis for The Wall
Street Journal by real-estate information site Zillow. The same
could be said for about 44% of listings in San Francisco, 36% in
Los Angeles and 35% in San Diego.
Outside of California, about 28% of listings met those criteria
in the Miami-Fort Lauderdale and Denver metros as well as 23% of
listings in Austin, Texas.
For most buyers, moving from a government-backed mortgage to a
jumbo doesn't result in a big hit on interest rates. Wells Fargo
Corp. on Tuesday, for example, advertised a 30-year fixed-rate
mortgage rate of 4.125% or slightly higher for government-backed
loans and 3.75% for jumbos.
Instead, the hurdle for many borrowers is the higher
qualifications that can come with getting a jumbo mortgage. While
Fannie and Freddie allow for a down payment of as low as 3% in some
circumstances, many jumbo lenders don't allow a down payment below
10% or 15%. A borrower's credit score also typically has to be
higher when he or she gets a jumbo.
Mathew Carson of mortgage broker First Capital Group in San
Francisco, said nearly four out of five home buyers he works with
now need a jumbo mortgage, up from less than half of borrowers five
years ago.
Mr. Carson said buyers in his area, who often come from the
high-paying tech industry, frequently have the income to pay a
jumbo loan but don't have the large down payment or six to 12
months of mortgage payments in reserves that the loans require.
"You can't find anything decent in San Francisco for under a
million bucks. With 20% down, you're at $800,000. That's not even
close to the conforming limit," Mr. Carson said.
Jumbo limits traditionally have been a way to limit the
government's role in the mortgage market. In 2005, before the
Fannie and Freddie limit was last raised, jumbos started above
$359,650 and represented more than a fifth of the market.
During the downturn, as private capital dried up, Congress and
regulators expanded Fannie's and Freddie's role, establishing a
temporary high-cost limit of nearly $730,000 while also ensuring
that the nationwide limit of $417,000 didn't fall even as home
prices tanked.
The FHFA in 2013 considered lowering limits, but backed off
after intense pressure from Congress and industry groups. So
instead borrowers have needed to wait for home prices to rise above
the boom-era level to create justification for another
increase.
The jumbo market's share "is remarkably close to where we've
been historically," said Guy Cecala, publisher of Inside Mortgage
Finance. "I don't think anybody would say the governmental
footprint needs to be any larger now."
Some in the real-estate industry say certain locales face more
pressure.
Land developer and homebuilder Brookfield Residential in some
California communities has held back from developing homes at
higher price points because company officials know potential buyers
would have trouble qualifying for a loan backed by Fannie, Freddie
or the Federal Housing Administration, which has its own loan
limits, said Adrian Foley, chief operating officer for Brookfield's
California region.
"It just gets worse over time as conventional mortgages don't
follow the market," said Mr. Foley. He added that some communities
just miles apart can have very different mortgage standards because
they're on opposite sides of a county border.
In San Bernardino County, for example, borrowers are capped at
$417,000, while in neighboring Los Angeles County the limit is
$625,500.
"It's night and day for the home builder," said real-estate
consultant John Burns. "On one side of the line, he'll set a price
point where he knows borrowers can use $600,000 conforming loans.
On the other side, he can't."
Write to Joe Light at joe.light@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
November 25, 2015 14:05 ET (19:05 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.
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