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REALTOR®: Drop in conforming loan limits will hurt Silicon Valley housing market

Wednesday, June 29, 2011

If conforming loan limits on mortgages backed by the Federal Housing Administration (FHA), Fannie Mae, and Freddie Mac are reduced beginning October 1, more than 30,000 California families will face higher down payments, higher mortgage rates, and stricter loan qualification requirements, according to the California Association of REALTORS® (C.A.R.).

"By reducing the conforming loan limit, thousands of California home buyers will be shut out of homeownership," said C.A.R. president Beth L. Peerce. "The higher mortgage loan limits are critical to providing liquidity in today's housing market and are essential to our housing recovery."

The conforming loan limit determines the maximum size of a mortgage that FHA, government-sponsored enterprises Fannie Mae, and Freddie Mac can buy or guarantee. As part of the economic stimulus package, the original conforming loan limits were raised in February 2008 during the housing crash so the GSEs could guarantee more loans. Non-conforming or jumbo loans carry a higher mortgage interest rate than conforming loans and require a higher down payment, increasing a home borrower's monthly payment. Congress temporarily raised the conforming loan limits from $417,000 to $729,750 and extended the loan limits each year through fiscal year 2011. They are set to expire on September 30.

"Our region is finally seeing some recovery. If Congress allows the loan limits to drop, this could dramatically impact the housing market in Silicon Valley," said Gene Lentz, president of the Silicon Valley Association of REALTORS®. "Lower loan limits will hurt home values, financing will be more expensive. More expensive mortgages are certainly not going to increase demand for homes."

In the absence of an extension, under the new GSE loan limits, Santa Clara and San Mateo counties would see a drop of $104,250 in the loan limit. Monterey County would see the greatest drop in the loan limit at $246,750, followed by San Diego ($151,250), Sonoma ($141,550), Solano ($140,500), and Napa ($137,500) counties. Under the new FHA loan limits, Santa Clara and San Mateo counties would see a drop of $104, 250. Monterey County would see the greatest drop in the loan limit at $246,750, followed by Merced ($201,450), Riverside ($164,650), San Bernardino ($164,650), Solano ($157,300), and San Diego ($151,250) counties.

Regionally, Marin County would be impacted the most, with more than 12 percent of home sales rendered ineligible under the lower GSE loan limit, followed by Contra Costa (11.5%), San Mateo (10.7%), San Francisco (9.9%), Monterey (8.8%), San Diego (8.2%), Sonoma (7.9%), and Santa Clara (7.8%) counties. Under the lower FHA loan limit, San Francisco County would be impacted the most, with more than 14 percent of home sales rendered ineligible, followed by Santa Cruz (13.9%), Orange County (13.3%), Marin (13.2%), San Mateo and Ventura (both at 12.7%), Santa Clara (12.2%), San Diego (11.9%), Alameda (11.8%), Riverside (11.5%), and Contra Costa (11%) counties.


The Silicon Valley Association of REALTORS® (SILVAR) is a professional trade organization representing over 4,000 REALTORS® and Affiliate members engaged in the real estate business on the Peninsula and in the South Bay. SILVAR promotes the highest ethical standards of real estate practice, serves as an advocate for homeownership and homeowners, and represents the interests of property owners in Silicon Valley.

The term "REALTOR®" is a registered collective membership mark which identifies a real estate professional who is a member of the National Association of REALTORS® and who subscribes to its strict Code of Ethics.

Variations of this article have appeared in local area newspapers.

For further information, please contact Rose Meily at SILVAR Public Affairs, email , or phone (408) 200-0109.

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