Drop in conforming loan limits would raise cost of housing financing, hamper housing recovery
LOS ANGELES (June 23) – More than 30,000 California families will face higher down payments, higher mortgage rates, and stricter loan qualification requirements if conforming loan limits on mortgages backed by the Federal Housing Administration (FHA), Fannie Mae, and Freddie Mac are reduced beginning October 1, 2011, according to analysis by the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.).
“By reducing the conforming loan limit, thousands of California home buyers will be shut out of homeownership,” said C.A.R. President Beth L. Peerce. “The higher mortgage loan limits are critical to providing liquidity in today’s housing market and are essential to our housing recovery. We urge Congress to maintain the current limits and make them permanent to provide homeowners and home buyers with affordable financing and help stabilize local housing markets.”
Barring Congressional action, the maximum FHA, Fannie Mae, and Freddie Mac conforming loan limit will decline to $625,500 beginning Oct. 1, 2011, from the current $729,950 limit, though the majority of counties will fall far below the $625,500 maximum. The conforming loan limit determines the maximum size of a mortgage that FHA, Fannie Mae, and Freddie Mac government-sponsored enterprises (GSEs) can buy or guarantee. Non-conforming or jumbo loans typically carry a higher mortgage interest rate than a conforming loan and require a higher down payment, increasing the monthly payment and negatively impacting housing affordability for California home buyers.
Under the new GSE loan limits, Monterey County would see the greatest drop in the loan limit at $246,750, followed by San Diego ($151,250), Sonoma ($141,550), Solano ($140,500), and Napa ($137,500) counties. Under the new FHA loan limits, Monterey County would see the greatest drop in the loan limit at $246,750, followed by Merced ($201,450), Riverside ($164,650), San Bernardino ($164,650), Solano ($157,300), and San Diego ($151,250) counties.
C.A.R. and the NATIONAL ASSOCIATION OF REALTORS® (NAR) have long advocated making permanent higher conforming loan limits. As a result of C.A.R.’s and NAR’s efforts, in 2008, Congress temporarily raised the conforming loan limits from $417,000 to $729,750 and has extended them annually through fiscal year 2011.
Regionally, Marin County would be impacted the most, with more than 12 percent of home sales rendered ineligible under the lower GSE loan limit, followed by Contra Costa (11.5%), San Mateo (10.7%), San Francisco (9.9%), Monterey (8.8%), San Diego (8.2%), Sonoma (7.9%), and Santa Clara (7.8%) counties. Under the lower FHA loan limit, San Francisco County would be impacted the most, with more than 14 percent of home sales rendered ineligible, followed by Santa Cruz (13.9%), Orange County (13.3%), Marin (13.2%), San Mateo and Ventura (both at 12.7%), Santa Clara (12.2%), San Diego (11.9%), Alameda (11.8%), Riverside (11.5%), and Contra Costa (11%) counties.
Leading the way...® in California real estate for more than 100 years, the CALIFORNIA ASSOCIATION OF REALTORS® (www.car.org) is one of the largest state trade organizations in the United States, with more than 160,000 members dedicated to the advancement of professionalism in real estate. C.A.R. is headquartered in Los Angeles.
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Impact of Lower Loan Limit for GSE-backed Loans
County | 2011 Limit | HERA Limits (GSE) | $ Difference | % GSE Loans Ineligible | % Calif. Households Represented |
| Alameda | $729,750 | $625,500 | $104,250 | 6.30% | 4.30% |
| Contra Costa | $729,750 | $625,500 | $104,250 | 11.50% | 3.00% |
| Los Angeles | $729,750 | $625,500 | $104,250 | 2.30% | 25.70% |
| Marin | $729,750 | $625,500 | $104,250 | 12.20% | 0.80% |
| Merced | $472,500 | $417,000 | $55,500 | 0.00% | 0.60% |
| Monterey | $729,750 | $483,000 | $246,750 | 8.80% | 1.00% |
| Napa | $729,750 | $592,250 | $137,500 | 3.80% | 0.40% |
| Orange | $729,750 | $625,500 | $104,250 | 6.20% | 7.90% |
| Placer | $580,000 | $474,950 | $105,050 | 4.40% | 1.10% |
| Riverside | $500,000 | $417,000 | $83,000 | 1.70% | 5.50% |
| Sacramento | $580,000 | $474,950 | $105,050 | 1.10% | 4.10% |
| San Bernardino | $500,000 | $417,000 | $83,000 | 0.70% | 4.90% |
| San Diego | $697,500 | $546,250 | $151,250 | 8.20% | 8.60% |
| San Francisco | $729,750 | $625,500 | $104,250 | 9.90% | 2.70% |
| San Luis Obispo | $687,500 | $561,200 | $126,300 | 6.40% | 0.80% |
| San Mateo | $729,750 | $625,500 | $104,250 | 10.70% | 2.00% |
| Santa Barbara | $729,750 | $625,500 | $104,250 | 5.80% | 1.10% |
| Santa Clara | $729,750 | $625,500 | $104,250 | 7.80% | 4.80% |
| Santa Cruz | $729,750 | $625,500 | $104,250 | 7.10% | 0.70% |
| Solano | $557,500 | $417,000 | $140,500 | 1.60% | 1.10% |
| Sonoma | $662,500 | $520,950 | $141,550 | 7.90% | 1.50% |
| Ventura | $729,750 | $598,000 | $131,750 | 5.80% | 2.10% |
| Average/Total | 5.90% | 84.90% |
Assumptions:
- Analysis covers all major counties affected by a change in the loan limits, 22 counties covered.
- 22-county analysis covers 85% of the households in California, according to the Dept. of Finance 2011.
- Based on projected level of annual existing, single-family home sales in California for 2012.
- Down payment of 20% for GSE analysis.
- Share ineligible based on the calculated loan amount given down payment assumptions at the current loan limits versus HERA loan limits.
- HERA loan limits from http://portal.hud.gov/hudportal/documents/huddoc?id=FHA_Loan_Limits_HERA.pdf*Fresno included in FHA analysis but not GSE because under the GSE loan limits, there would be no change.
| County | 2011 Limit | HERA Limits (FHA) | $ Difference | % FHA Loans Ineligible | % of Calif. Households |
| Represented | |||||
| Alameda | $729,750 | $625,500 | $104,250 | 11.80% | 4.30% |
| Contra Costa | $729,750 | $625,500 | $104,250 | 11.00% | 3.00% |
| Fresno | $381,250 | $281,750 | $99,500 | 6.50% | 2.30% |
| Los Angeles | $729,750 | $625,500 | $104,250 | 5.40% | 25.70% |
| Marin | $729,750 | $625,500 | $104,250 | 13.20% | 0.80% |
| Merced | $472,500 | $271,050 | $201,450 | 3.20% | 0.60% |
| Monterey | $729,750 | $483,000 | $246,750 | 9.70% | 1.00% |
| Napa | $729,750 | $592,250 | $137,500 | 7.80% | 0.40% |
| Orange | $729,750 | $625,500 | $104,250 | 13.30% | 7.90% |
| Placer | $580,000 | $474,950 | $105,050 | 4.20% | 1.10% |
| Riverside | $500,000 | $335,350 | $164,650 | 11.50% | 5.50% |
| Sacramento | $580,000 | $474,950 | $105,050 | 1.10% | 4.10% |
| San Bernardino | $500,000 | $335,350 | $164,650 | 5.30% | 4.90% |
| San Diego | $697,500 | $546,250 | $151,250 | 11.90% | 8.60% |
| San Francisco | $729,750 | $625,500 | $104,250 | 14.40% | 2.70% |
| San Luis Obispo | $687,500 | $561,200 | $126,300 | 10.30% | 0.80% |
| San Mateo | $729,750 | $625,500 | $104,250 | 12.70% | 2.00% |
| Santa Barbara | $729,750 | $625,500 | $104,250 | 7.40% | 1.10% |
| Santa Clara | $729,750 | $625,500 | $104,250 | 12.20% | 4.80% |
| Santa Cruz | $729,750 | $625,500 | $104,250 | 13.90% | 0.70% |
| Solano | $557,500 | $400,200 | $157,300 | 4.80% | 1.10% |
| Sonoma | $662,500 | $520,950 | $141,550 | 9.30% | 1.50% |
| Ventura | $729,750 | $598,000 | $131,750 | 12.70% | 2.10% |
| Average/Total | 9.30% | 87.20% |
Assumptions:
- Analysis covers all major counties affected by a change in the loan limits, 23 counties covered.
- 23-county analysis covers 87% of the households in California, according to the Dept. of Finance 2011.
- Based on projected level of annual existing, single-family home sales in California for 2012.
- Down payment of 3.5% for FHA analysis.
- Share ineligible based on the calculated loan amount given down payment assumptions at the current loan limits versus HERA loan limits.
- HERA loan limits from http://portal.hud.gov/hudportal/documents/huddoc?id=FHA_Loan_Limits_HERA.pdf*Fresno included in FHA analysis but not GSE because under the GSE loan limits, there would be no change.
http://www.car.org/newsstand/newsreleases/2011newsreleases/loanlimits/
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