More buyers in Rancho Palos Verdes, Rolling Hills and other high end South Bay neighborhoods may be motivated to purchase a home before an Oct. 1 deadline when the government plans to scale back the size of “jumbo” mortgages it guarantees in costly real estate markets.
On Oct. 1, the maximum loan amount that Fannie Mae and Freddie Mac is set to decrease from $729,750 to $625,500. This might make mortgages more expensive or more difficult to get for buyers in high-cost areas, MSNBC.com reports.
For example, after Oct. 1, a borrower who seeks a government-backed mortgage for a $1-million property may have to come up with a $370,000 down payment instead of $270,000, Rob Chrisman, a mortgage banking consultant from San Rafael, Calif., told MSNBC.
Up until 2008, any loan more than $418,000 was considered a jumbo loan, but that later swelled to $625,500 and then was temporarily set at $729,750 (which expires at the end of September).
Once the current jumbo loan limit expires, lenders who want to make loans over $625,500 either will have to hold onto the mortgage themselves or find a private investor to purchase it.
Guy Cecala of Inside Mortgage Finance is confident that private lenders will step in to make up any of the downfall from the GSEs change. He’s already pointing to the signs: In the last quarter of 2010, private lenders originated more loans over $417,000–which is considered the traditional jumbo market–than did government agencies.
Source: “Rules for ‘Jumbo’ Mortgages to Change This Year,” MSNBC.com (April 25, 2011)
