WASHINGTON – A landmark mortgage rescue bill that is moving through Congress would help San Diegans by making loans more affordable – but experts disagree on how much.
“It could be huge. It is pretty important – but only if the implementation of it is done correctly,” said Dave McDonald, president of the San Diego County chapter of the California Association of Mortgage Brokers.
McDonald said federal authorities, in addition to making larger loans more affordable, should relax requirements that make it difficult for many homeowners to qualify for the loans.
But Gary London of San Diego, a real estate economist and consultant, views the legislation as of little benefit in the high-priced San Diego market.
“Both the tax opportunities and the insurance and the loan limits (in the legislation) are targeted for markets that have housing inventories at an order of magnitude lower pricing level,” London said.
Congress has been working on the legislation since last year. Designed to help homeowners amid a tidal wave of foreclosures and a depressed housing market, it has attracted wide support among lawmakers.
President Bush has threatened to veto the bill if it retains a $3.9 billion program to help communities buy and rehabilitate foreclosed properties. But some observers think its passage and enactment into law are likely in the next several weeks.
The legislation has many elements, including a $300 billion package to help about 400,000 homeowners threatened with foreclosure to reach deals with their lenders to refinance their mortgages, as well as various tax breaks.
One provision, sponsored by Sen. Dianne Feinstein, D-Calif., would establish minimum qualification standards for mortgage brokers and lenders. Local experts said that would reduce lender fraud.
But for San Diego, experts say, the most valuable provisions in the legislation are those that would raise the limits on loans that could be insured by the Federal Housing Administration, and the limits on loans that could be bought by Fannie Mae and Freddie Mac, the government-sponsored housing enterprises.
Raising these limits to $625,000, as proposed in a Senate version of the bill, would make larger loans more affordable because they would carry less risk as a result of being insured or bought by Fannie or Freddie.
House lawmakers want to raise the limits even higher, to $730,000. The House is expected to take up the legislation this week.
“The higher the loan limit, the better off we are in California,” said Bill Brown, president of the California Association of Realtors.
San Diego is one of the highest-priced housing markets in the nation. As a result, many residents have no choice but to seek jumbo loans, which carry higher interest charges than government-backed loans.
In the past, the federally insured loan limit for San Diego was $362,790. The conforming limit, or maximum loan that could be acquired by Fannie Mae or Freddie Mac, was $417,000.
Both limits are temporarily set at $697,500 since the passage of economic stimulus legislation this year. But without congressional action, the limits will fall to their previous levels in 2009.
Housing prices have taken a dive in San Diego and across the nation, as homeowners have fallen victim to steeply rising costs in adjustable-rate mortgages and an inability to refinance in a tight credit market.
The median home price in San Diego County fell to $370,000 in June, off 25 percent from a year earlier, according to research firm Dataquick Information Systems.
Brown believes higher loan limits will boost the local housing market by making it possible for homeowners threatened with foreclosure to refinance into less-costly, government-insured mortgages.
He said many of those facing foreclosure would benefit because they are seeking loans that fall below the proposed limits.
London disagrees. He said the proposed increases are insufficient to make an immediate difference in San Diego because many mortgages are higher than the proposed limits.
In the future, he said, “it will have a bigger impact for a vast amount of people that will be coming into the market purchasing their first home, particularly condominiums and higher-density homes at lower price points.”
