Buyers of larger, middle-class homes may see loan costs rise this fall if the real estate industry can’t persuade Congress to keep higher dollar limits in place for federally backed mortgages.
The maximum loan limits are scheduled to drop Oct. 1 for mortgages backed by the Federal Housing Administration and the government-sponsored entities, Fannie Mae and Freddie Mac.
The California Association of Realtors and other groups are urging Congress not to make lending more difficult for a struggling housing industry.
But loan officers and real estate agents are mixed in regard to the possible impact for Sonoma, Lake and Mendocino counties. Most agree that the vast majority of homes on the market here would still be eligible for the federal mortgage guarantees.
“I don’t think it’s going to affect us all that much,” said Mike Kelly, an agent with Keller Williams in Santa Rosa.
Three years ago, the federal government agreed to raise the limit on the mortgages it guarantees to as much as $729,750 in California and other states with more-expensive homes.
The change resulted in maximum loan limits of $662,500 for Sonoma County and $512,500 for Mendocino County. Lake County received a maximum amount of $401,250 for FHA loans only.
Unless Congress acts, Sonoma County’s limit this fall will drop to $520,950. Lake County’s limit for FHA loans would fall to $271,050. Mendocino County’s limit would drop to $373,750 for FHA loans and $417,000 for other federally backed loans.
Robert Kleinhenz, deputy chief economist for the California Association of Realtors, estimated that about 9 percent of homes sold in both Sonoma County and the state would no longer be eligible for FHA loans. About 8 percent of the county’s homes would no longer be eligible for guarantees from Fannie Mae and Freddie Mac — a rate slightly higher than for the entire state.
The change could amount to nearly 50,000 fewer homes sold statewide this year, he said. Moreover, the segment of the market that would be affected by the change “is actually the one that is currently the weakest.”
Sales of homes between $500,000 and $1 million are down 14 percent for the first five months of 2011, compared to a year earlier, Kleinhenz said. In contrast, sales of homes for under $500,000 increased by 3 percent, while those above $1 million remained flat.
Scott Sheldon, a loan officer with First Cal Mortgage in Petaluma, said the lower limit for FHA loans could mean higher costs for affected buyers in Sonoma County — perhaps costing 1.5 percent more in interest rates.
“That’s going to price a lot of people out of the market,” he said.
But other loan officers in the three counties doubted the change would impact many buyers.
Nick Costa, president of American Mortgage Partners, said at his Ukiah office he rarely sees people who would be affected by the lower loan limit.
“We’re in a first-time homebuyer market and first-time hombuyers aren’t buying $500,000 homes,” Costa said.
— Robert Digitale