Pending bill could help desperate homeowners

A proposal pending in a U.S. Senate committee that would raise government home-loan limits in California and other high-priced markets could provide a life raft for thousands of borrowers caught between softening home prices and skyrocketing adjustable-rate mortgages in the state, mortgage brokers say. The House-passed bill, HR 1427, would allow mortgage repurchasers Fannie Mae and Freddie Mac to securitize and sell loans of up to $625,000, or 150 percent of the conforming loan limit of $417,000, in areas where the median home price exceeds the conforming limit.

Currently, the only recognized high-cost areas are Alaska, Hawaii, Guam and the U.S. Virgin Islands. California's median home price was $478,000 in July, according to DataQuick Information Systems. The median is a mid-point; half sell for more, half for less. The conforming loan limit is also the index for the base and high-cost limits for loans insured by the Federal Housing Administration, which can vary by county depending on the median housing price for that county or metropolitan statistical area.

Although there are homes that can be purchased for the conforming and FHA high-cost limits, "there are an awful lot of homes that are left out at that level," said John Holmgren, owner of Holmgren & Associates in Oakland and current president of the California Association of Mortgage Brokers' East Bay chapter. CAMB believes the lack of FHA accessibility is "the major reason" so many Californians chose subprime loans to achieve home ownership, said Michael Tacconi, a broker with Meridian Financial in San Ramon and past president of East Bay CAMB.
Another bill passed by the House and, like HR 1427, pending in the Senate Banking Committee -- HR 5121 -- would allow the FHA to insure bigger loans with more flexible terms, including no-money-down products, which is expected to help the agency regain market share in high-cost areas such as California.

Currently, FHA loans require a minimum 3 percent down payment. Loans that can be sold to Fannie Mae and Freddie Mac, or that meet FHA requirements, usually carry lower interest rates. Having access to lower rates on loans of up to $625,000 could be a way out for millions of borrowers facing interest-rate resets on subprime and prime adjustable-rate mortgages in the midst of softening home prices and tightened credit.

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