Stimulus brightens prospect for locals

The economic package would provide cheaper loans to home buyers here

By E. Scott Reckard and Peter Y. Hong
Los Angeles Times

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HOW THE STIMULUS PLAN HELPS BUYERS SAVE CASH

The change to the mortgage loan limits could save local home buyers hundreds of dollars on their monthly payments.

Currently, a buyer purchasing a median-priced home of $570,000 in San Luis Obispo with a 20 percent down payment would need a loan of $456,000, which is more than the conforming loan limit of $417,000.

Nonconforming, or jumbo, loans carry higher interest rates, so the buyer would get a rate of 7 percent and a monthly payment of $3,033 on a 30-year fixed-rate loan.

Under the stimulus package, the buyer can obtain the same amount but as a conforming loan with a lower interest rate of 5.5 percent.

At that rate, the monthly payments on the $456,000 loan drop to $2,589, for a savings of $444 a month, or $5,328 a year.

SOURCE: MATT COLONELL OF OBISPO MORTGAGE

The economic stimulus plan worked out Thursday in Washington would provide nearly a year of cheaper loans for Californians buying or refinancing higher-cost homes, news that elicited joy in the housing and mortgage industries.

Leaders of the House of Representatives and the White House agreed the size of loans that can be purchased by government-sponsored mortgage buyers Fannie Mae and Freddie Mac should be increased sharply for a year from the current cutoff of $417,000.

The plan also would nearly double the size of loans insurable by the Federal Housing Administration to $729,750 from $367,000.

The plan will likely provide the greatest aid in the state’s priciest markets, such as the Bay Area.

Local analysts say San Luis Obispo County residents with homes in the $600,000 to $900,000 range — and those looking to buy or refinance them—could see benefits, too.

That bracket represents more than 500 houses now for sale in the county, said Matt Colonell, mortgage broker with Obispo Mortgage in San Luis Obispo, citing the San Luis Obispo Association of Realtors Multiple Listing Service.

“Because the proposed change would make their houses more affordable to buyers, their houses might sell more quickly and for a higher price,” he said.

Those dollars would improve the local housing market, which would filter down and boost the local economy, he added.

“Home sales generate significant economic activity in our county,” he said. “(It’s money) for real estate agents, title companies, mortgage lenders, home improvement contractors and hardware stores.”

In December, the county’s median home price was $472,500.

Thousands in savings

The Federal Housing Administration was set up to provide mortgages to first-time buyers, including many with less-than-perfect credit, and insures loans to borrowers with down payments or home equity of as little as 3 percent.

Any loans above $417,000 are now considered jumbo mortgages. In recent months, they have become harder to obtain because skittish private investors have become reluctant to buy them.

In San Luis Obispo County, the government assistance would give a buyer getting a loan of $456,000, for example, the opportunity to get a conforming loan instead of a higher-priced jumbo loan. That would save the buyer $444 per month or $5,328 per year in interest costs, Colonell said.

“It’s the single most effective step they could take to stabilize the housing and mortgage market,” said Rick Simon, a spokesman for Calabasasbased Countrywide Financial Corp., the nation’s largest home lender, which had led the lobbying to raise loan limits.

The increased limit on loans eligible to be bought by Fannie Mae and Freddie Mac would be temporary, expiring Dec. 31. It was not clear whether the higher FHA limit would be temporary or permanent.

The increase in the conforming loan limit also could benefit county homeowners who have mortgages between $417,000 and $729,750, Colonell said.

If the interest rate on their mortgage is higher than the current interest rates on conforming loans, they could benefit from refinancing while the loan limit is temporarily raised, he added.

Housing market help

The National Association of Realtors estimated that raising the conforming loan limit to $625,000 would strengthen home prices by 2 percent to 3 percent and generate $42 billion in increased economic activity. That would be reflected in San Luis Obispo County, too.

“Even for homeowners who are not selling their houses, getting some of the available houses sold and reducing the inventory of houses for sale would help stabilize real estate values in our county,” Colonell said.

Higher loan limits would be significant in California, housing and lending industry officials said. It would make it easier for battered lenders such as Countrywide to sell fixed-rate loans to borrowers at risk of defaulting when their adjustable-rate mortgages reset to higher payments.

The California Association of Mortgage Brokers said the plan would “increase much-needed liquidity in today’s struggling housing market, giving homeowners and home buyers access to safe, sustainable loans.”

Another perspective

Not all observers were as optimistic. Edward Leamer, an economist at UCLA who said higher loan limits “are not going to matter much now” because the housing markets are still destabilized by bubble-era home prices that must continue to fall.

The proposed conforming loan limit is far beyond the reach of most people, Leamer said. “Most Americans can’t afford a $700,000 house. They don’t have the down payment, they don’t have the income.”

A bill isn’t expected to be signed for six weeks.

Tribune news assistant Tonya Strickland contributed to this report.