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Agent: Lowering Conforming Loan Limits Will Cause Problems for Buyers and Sellers

Sometimes we all need a little help. Sometimes we just need to be left alone to find our own way, and sometimes we need a little of both.

Recently, the Federal Government initiated regulations that will have a huge effect on the ability of qualified buyers to purchase a home. But, have they gone too far? Are these new regulations helping or hindering the real estate market? Becuase it is clear that the economy is dependent on jobs and housing, any effort to hinder qualified buyers from buying a home is detrimental to the 9 percent-plus unemployment rate.

Credit scores are required to be 700-plus with a 20 percent down to qualify for “good” interest rates. Sixty to 70 percent of all loans have statistically had less than 20 percent down. Even though the reports consistently highlight homes that are underwater, the majority of homeowners are still making their monthly payments and are not looking forward to default. To make rules that hinder everyone is not in the best interests of our country.

“We must be better stewards of the U.S. housing finance system if it is to thrive and effectively serve American home buyers and mortgage investors into the future,” said NAR President-Elect Moe Veissi, broker-owner of Veissi & Associates Inc., in Miami.

“Repairs to our current housing finance structure must be made, but we must be careful that changes to the system do not come at the expense of homeownership opportunities for Americans,” Veissi added.

According to data from a National Association of Realtor survey, reduction to the conforming loan limits is already impacting mortgage liquidity. Consumers who are above the lower loan limit are experiencing higher interest rates and are facing higher down payment requirements.

On Sept. 30, the FHA and GSE loan limits were allowed to decline in 669 counties in 42 states across the entire nation.

In King County, loan limits have decreased from $567,500 to $506,000, a decrease of $61,500. This will have lasting effects for this area. The higher loan limits with the restrictive underwriting guidelines in effect now have already made it difficult for borrowers to obtain affordable mortgage financing

The Eastside has a large supply of homes over $700K that will be directly affected. Other areas face similar problems. With the Feds failing to approve maintaining the conforming limits, homes listed above this range will have problems finding buyers for their home. Is this beneficial to the economy?

“For hundreds of years, this country has understood the value of homeownership because it helps families build wealth, supports community stability and contributes to our economy. We need to make sure that future housing policies continue to reinforce our long-standing value of homeownership, for the future of our families and our country,” Veissi said. "As a result, all of us need to let our legislators know that their attempts to help the housing market are making matters worse.”

Latest NWMLS statistics as reported by Windermere Real Estate:

  • Inventory is down 25 percent from last year at the same time.
  • Pending and closed sales for September are up compared to the prior year.
  • There are 3.8 month's supply of inventory. A balanced real estate market is defined as three to six month's supply of inventory.

Distressed properties (bank owned or short sales) represented 32 percent of the sold properties in the 3rd quarter of 2011 compared to 26 percent a year ago. The high percentage of distressed sales is continuing to put downward pressure on pricing.

Nathan October 30, 2011 at 02:12 PM
This is relevant to the Renton area with our glut of 700k homes. I feel bad that people buying McMansions will no longer have their loans subsidized by taxpayers.
jdrabe October 30, 2011 at 06:21 PM
Am I to understand that even first time home buyers must now come up with 20% down? 40k down on a modest Renton area home is going to be really tough for a lot of folks and will contribute to the downward home value spiral. Somebody's getting rich off this absurd policy and it certainly isn't the 99%
Rebecca Haas October 30, 2011 at 08:44 PM
No, that's not what it means. FHA (at 3.5% down payment minimum) and several other organizations (such as BECU) still offer low down payment options to buyers who are either buying for the first time, or who have less than "perfect" credit. If you speak to a lender or mortgage broker directly, you'll learn about the options available. Many real estate brokers (like me and the woman who wrote the article) are familiar with a lot of the programs available and can help provide referrals to local lenders who can further educate you on what's out there in today's market. My team teaches classes about 8-10x per year where we bring a lender who covers this information. You can find current schedules at our website: www.TeamReba.com/R_events.php
Ryan Runge November 02, 2011 at 04:17 PM
I agree Rebecca. I also teach those classes. Mine are from the Washington State Housing and Finance Commission. It is still possible to get in with a low down payment and many buyers are taking advantage of it. www.teamrunge.com

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