FHA Borrowers In The SF Bay Area To Face Restricted Access

by John Glynn on June 2, 2011

California awash in red as the most severe adjustments will hit the highest cost areas

There is structural change pending for FHA mortgages that will soon trim down the maximum size of an FHA loan by 14%.

Due to change on or before October 1, 2011, this change will impact the San Francisco Bay Area more than any other part of the country.

The following counties in the Bay Area are presently at the loan limit ceiling of $729,750, and will be reduced to $625,500 ceilings in a matter of months:

Alameda, Contra Costa, Marin, Napa, San Francisco, San Mateo, and Santa Clara

Already on Borrowed Time

The limit of $729,750 is a temporary extension afforded by stimulus act legislation that put a temporary lift on the conforming loan limits. This was intended as a way of opening mortgage refugee camps to provide borrowing access to just-barely-jumbo borrowers when the jumbo market went into seizure in August of 2007 – the beginning of the financial crisis.

The limits have been extended by Congress each year since. But for the first time since the crisis and associated meltdown in financial markets, the political sentiment has flopped the other way. Movements are afoot to trim down the exposure and involvement of government-sponsored, government conservatorized, and government run bodies in the mortgage marketplace.

That means that despite the growing realization that the economy is not on a clear recovery path, the usual assumption that Congress will extend these loan limits is currently questionable.

HUD Releases Impact Study Findings

HUD recently issued a study to measure the impact. Their findings suggest that for California FHA-endorsed loans since January 1, 2010, 5% of the cases representing 12% of the outstanding balances in dollar total would be ineligible under the new ceilings.

Reaction

12% of the dollar volume of the FHA marketplace is not insignificant by any stretch.  Right now, you can use a maxed-out FHA loan to buy a home worth $756,000 with the minimum 3.5% down payment. Once these limits expire, the reach is reduced to $648,000

That is a key price range in the high cost Bay Area. The 650k to 750k range is an active price bandwidth that will undoubtedly feel this impact. If this is to be a step backward in order to take two steps forward toward a privatized mortgage marketplace, it certainly will not have a positive initial impact; the housing economy is on wobbly knees as it is. Trimming access, as this will do undermines demand, period.

We already have demand issues. And we certainly have credit access issues. This will not help.

The Current Opportunity

If you’re a buyer in this range, or a refinance candidate looking for the right opportunity to transact, you should give serious consideration here. Rates are at 2011 lows, and lenders have been known to cut off access prior to formal effective dates of changes like this. Meaning, an October 1 change date does not guarantee you that lenders will still participate in originations in September, or even August.

If this is your range, the clock is ticking. Contact me below if you’d like to explore how this applies to your individual circumstances.

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