SACRAMENTO, Calif. — April 3, 2006 — The California State Assembly will vote on a resolution early this week beseeching Congress to push through a bill that could save state home buyers as much as $630 million annually.
At issue is what’s called a conforming loan, the threshold at which government-sponsored corporations Fannie Mae and Freddie Mac will purchase and repackage mortgages. Buyers generally pay an interest rate of between an eighth and half percentage point higher on loans above the amount, now set at $417,000 for a single-family home.
Because California housing prices are significantly higher than other states — the $457,000 median is about $300,000 above the national level — buyers here must disproportionately take out such mortgages, known as jumbo loans. Those can cost as much as $135 more per month just in interest.
“If you live in a high cost area, you are subject to the same loan limits as someone in rural Kansas City,” said Michael Faust, chairman of the government affairs committee for the California Association of Mortgage Brokers, the sponsor of the resolution. “This is a simple thing that can be done to help alleviate some of the affordability issues we have in the state of California.”
The joint resolution, set for a vote April 4, has no teeth in itself though. If it passes the state Assembly and Senate, it will call on California federal lawmakers to “take that as the position of the state,” said Leland Yee, D-San Francisco, a co-author of the resolution.
The House of Representatives already passed a bill in October, HR 1461, that would designate California and other states where the median price exceeds the current loan limit as “high-cost.” It would increase conforming loan limits to a region’s median price or 150 percent of the cap, whichever is lower. In most parts of California, the conforming boundary would rise to $625,000.
But a pending Senate version does not include that provision, and some organizations want to keep it that way. The Mortgage Bankers Association, a Washington, D.C.-based trade group representing companies that issue home loans, is opposed to raising conforming levels for two main reasons.
First, the mission of Fannie Mae and Freddie Mac is to promote affordable housing and loans above $417,000 arguably exceed that range, said Steve O’Connor, the organization’s vice president of government affairs. Second, it is appropriate for banks to charge higher interest rates for larger loans, because they are riskier.
“You’re talking about high loan amounts concentrated in specific geographic areas,” O’Connor said. “There’s a slightly greater risk because the loss severity would be more.”
The California joint resolution is, in part, designed to encourage the House to stand strong on the conforming loan component when both bodies of Congress work to integrate the versions of the bill, Faust said.
The California Mortgage Bankers Association has taken a neutral stance on the resolution because some of its members support the proposal and others oppose it, said spokesman Dustin Hobbs.
The idea of raising conforming loan limits in expensive housing markets is not new. Alaska and Hawaii are already designated high cost states, with conforming loan limits now set at $625,000.
That makes little sense, said local mortgage broker James Haro, because California housing prices have long outpaced those markets. Indeed, the median sales price for existing single-family homes in the San Francisco metropolitan area, which encompasses much of the East Bay, stood at $715,700 in the fourth quarter, according to the National Association of Realtors.
That is 21.3 percent more than the $590,000 median in the Honolulu, Hawaii area. The median price indicates that half the homes sold for more than that amount.
Given the region’s high home prices, only 35.31 percent of home purchase loans were conforming last year in the Oakland area, while just 20.17 percent were in the San Francisco area, according to San Francisco-based LoanPerformance.com. (The company estimates that its figures only capture about 75 percent of total loans originated.)
Those numbers jibe with what Haro, principal broker with Alamo Mortgage Corp. in Walnut Creek, sees day-to-day in the East Bay. He said that typically, only second- or third-time home buyers have built up enough equity to qualify for conforming loans. First-timers usually must resign themselves to higher rates — or renting.
“They should have done this years ago,” Haro said.
© 2006 Contra Costa Times, James Temple
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