Home Buying in Kihei>Question Details

SB Buyer, Home Buyer in Lahaina, HI

Changes to conforming loan limits? How will Maui be effected?

Asked by SB Buyer, Lahaina, HI Thu Jun 23, 2011

There's been quite a bit of internet chatter that the new conforming loan limit which reduces from $729,720 to $625,000 in September will impact home prices. Although changes are set to take effect at the end of September 2011, apparently applications for loans have to be in by the end of June for BoA loans. Bad news for refinancing for those above the new limit who closed 2009/10, and for those with fixed rates at the old limit if rates drop (so I'm told). Will brokers–especially doing BPOs–take into account the cascading downward pressure this will obviously have on prices in Maui?

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After attending a title company presentation yesterday, it appears that Maui County loan limits for Fannie, Freddie, FHA and VA could drop almost $200,000 if the proposed rules after Sept. 30 take effect.

We will a drop in to the $500,000 range according the information I received.

Please don't discount the power of the National Association of Realtors though. We just sent out a call to action yesterday to all 1,000,000 members to write to their legislators to keep the present limits. I think we have a good chance of success.

As far as brokers doing BPO's on Maui, I doubt they will take this in to consideration. The recent passage of Act 48 in Hawaii, has brought foreclosures to a standstill until the regulators can figure it out. I have not done a BPO in 2 months and I was doing 3 a week . If I purchased in 2009/10, I would not even bother to apply unless you put down about 50% down payment, values have dropped too much and you may not have as much equity as you think.

Tracy Stice, Broker in Charge Maui
Hawaii Life Real Estate Brokers
1 vote Thank Flag Link Thu Jun 23, 2011
I do stumble across Mr Yun's comments every now and then, and he hasn't won me over with them yet. No disrespect. I've also stumbled into one or two of those Canadians, but they were more into the condo market.

The problem as I see it is multifaceted. Poor regulation is certainly one reason, rating agencies another. This goes right back to Mr Greenspan and the Dot.com bubble, with economic idealism playing its part. But where I think the real hub of the problem lies, is in the financial markets; derivatives, securitized mortgages, CDO's, and CDS's. Conveyor belt lending that repackaged risk for export, the unrelenting greed that followed, and the tsunami that many saw coming, but were either to fearful to point out, or in too deep to pull out. Wall Street's involvement was a dance with the devil!
0 votes Thank Flag Link Sat Jun 25, 2011
SB,

Perhaps Lawrence Yuen, the NAR chief economist could answer your question better than I could about making mortgages more expensive. My guess is that these loans would now be treated as Jumbo loans and have the corresponding added points or slightly higher rates, in any case your thought about driving the market prices down even further will be true in my opinion.

We have all kinds of cash buyers snapping up bargains, especially from Canada right now. My company has already closed 5 deals over $1,000,000 this year to cash Canadian buyers.

Unfortunately , government meddling started this whole fiasco by deregulating the entire lending industry, now they are trying to patch it with bandaids.
0 votes Thank Flag Link Fri Jun 24, 2011
Thanks for posting your letter Tracy. I'm not sure I really understand how lowering the loan limits makes mortgages more expensive. Interest rate changes effect monthly payments. If the return to lower conforming loan limits prevails, either borrowers will need to find (save) a larger down payment for the same home, choose a less expensive home, or wait until home price adjust to the loan limits. I'm guessing it will be a combination of all three. There are many positive impacts in there; home prices will adjust to their long term historical trends, homes owners with more equity are less prone to default, and affordability will be based on home values, as opposed to be being driven by artificially low rates.

The best thing for this market it to let it takes its course. Everyone will be much better off when a full correction has taken place. Efforts to prop it up are more likely to prolong the pain. Remember, this isn't lowering the conforming loan limits. It's only a reversion, removing one of the life supports that was introduced a while back when the credit squeeze started.

BTW, in other states, private investors have been very active in the market, and comprise a large portion of buyers for distressed sales.
0 votes Thank Flag Link Fri Jun 24, 2011
SB,

To answer your question, attached is the text from our NAR call to action of a few days ago. It clearly states the NAR position:

Dear Representative Hirono,

As your constituent, and a REALTOR®, I urge you to act now to make the current loan limits for FHA, Freddie Mac and Fannie Mae (the government sponsored enterprises, or GSEs) permanent. On October 1, 2011, the mortgage loan limits for FHA and the GSEs will decrease, lessening the availability of mortgage credit for hundreds of thousands of responsible and credit-worthy American families. What we need now is time for the real estate market and overall economy to heal, to self-correct, and stabilize. Reducing mortgage liquidity at this time will hurt our fragile economic recovery. H.R. 1754 has been introduced in the House by Reps. Miller (R-CA) and Sherman (D-CA) to make the current limits permanent. No similar bill has yet been introduced in the Senate.

In today's real estate market, lowering the loan limits will make mortgages more expensive for households nationwide. Private investors have not yet returned to housing markets, and FHA and GSE mortgages together continue to constitute the vast majority of home financing available today, which makes it particularly critical to extend the current limits. Lowering the loan limits now will leave credit-worthy borrowers without access to affordable financing and will prolong our housing crisis.

Although many believe that lower rates will only affect a few high-cost markets. the new limits, published by HUD and the Federal Housing Finance Agency (FHFA), show that more than 669 counties in 42 states and the territories would be negatively impacted by the loan limit change. The average decline in loan limits would be more than $68,000. Only eight states will see no decline. Every other state will see a drop in loan limits, and therefore a corresponding drop in the availability and affordability of mortgage credit. I urge you to pass legislation, like H.R. 1754 in the House, to make the current limits for FHA and the GSEs permanent, and preserve housing opportunities for American families.

Sincerely,
Tracy Stice
470 Ulumalu Rd
Haiku HI 96708-5316
0 votes Thank Flag Link Fri Jun 24, 2011
If, as many seem to be saying, conforming loan limit changes won't effect the housing market, why is the NAR lobbying so hard to stop it?
0 votes Thank Flag Link Thu Jun 23, 2011
Yeah, but I don't know what the percentage of ARMs has been.
0 votes Thank Flag Link Thu Jun 23, 2011
Let's take this apart a little. Most of the buyers who bought at the higher conforming rate in 2009/2010 probably got great rates and conventional terms. Many probably aren't looking to refinance unless other factors are requiring they do a loan modification. As far as it impacting some neighborhoods, it may but the difference in conforming and non-conforming loan rates is really low now. At the $750,000-$900,000 range that would be impacted, it probably isn't a big factor. I agree with Tracy that the new foreclosure rules will (are) impact the market a lot more significantly.
0 votes Thank Flag Link Thu Jun 23, 2011
I agree with what you say in your blog. This just doesn't seem to be helping anyone. More people probably continuing to live rent free, further declines in inventory, and more buyers like me throwing their arms in the air. Short sales would be an alternative, but they need a little fine tuning as well to get them through the system quicker. BTW, I never underestimate the NAR :)
0 votes Thank Flag Link Thu Jun 23, 2011
Dear SB,

Take a look at the link in my reply. That will give you an idea of the law change. I am writing a new blog to explain further and may some predictions as to what the moratorium on non judicial foreclosures will do to the Hawaii market.
0 votes Thank Flag Link Thu Jun 23, 2011
Tracy, thanks for that input. Are you saying there is a moratorium on foreclosures in Hawaii?
0 votes Thank Flag Link Thu Jun 23, 2011
I'm skewing my question to the distressed markets in places like Kihei, Maui in the upper price ranges, so anything close to, or above the limit, and the cascading effect it will have just below those limits.
0 votes Thank Flag Link Thu Jun 23, 2011
Aloha SB Buyer,

I'm not a loan officer, but given the steep drop in prices, I would think it wouldn't have any affect.
In the first quarter of 2011, the median price was $450,000. With the change in the loan limit, that still gives a buyer more than an additional 35% to work with. It doesn't look like the market has hit bottom yet, so I don't think it will affect condos at all. If it has any effect, it will be for a limited number of sales in Kula, Wailea, Kapalua and Kaanapali.


Frank
Web Reference: http://www.hawaiihome.biz/
0 votes Thank Flag Link Thu Jun 23, 2011
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