Mumbo jumbo

Congress appears set to allow home-loan guarantees to roll back to pre-stimulus levels, but some real-estate experts in the Boulder Valley seem to believe the local market can take the move in stride — some, but not all.

“Essentially, you will be able to get less of a mortgage at an affordable interest rate,´ said Ken Hotard, senior vice president for public affairs at the Boulder Area Realtor Association. “That makes those homes less affordable, and, you would assume, potentially reducing sales and having an impact on the number of buyers on the market.”

As part of the 2008 stimulus package, Federal Housing Administration loan caps for Fannie Mae and Freddie Mac were allowed to rise to 125 percent of the median home value in high-priced markets, such as Boulder County. Here, that meant that conforming loans, which get the lowest interest rates, were capped at $460,000 instead of what was a nationwide cap of $417,000.

Last year, the cap was extended with little debate by Congress, but with budget deficits clearly in the sights of the Republican-controlled House of Representatives, that may have changed. The reasoning is fairly straightforward. Last year, the federal government backed nine out of 10 home sales in the country, and Fannie Mae, which buys mortgages from lenders and packages them for investors, has racked up nearly $100 billion in bailout funds as loans soured over the last three to four years.

“Credit availability (from private sources) right now is very, very difficult in most markets,” Hotard said. “This would definitely chip into the higher-end market … and would have a significant impact on home ownership and home availability here in Colorado and Boulder County.”

While all loans have quite a bit of interest-rate variability, non-conforming loans — or jumbo loans as they are sometimes called — see even more variability. And in truth, the strength of the city of Boulder market has coincided with that guarantee mark, with the bulk of the homes moving at about $500,000, and the high-end market lagging behind.

Still there are a number of options available, said Carrie Nash, sales manager for SWBC Mortgage of Boulder.

“We don’t think we’re going to lose that many customers because we have other ways to accommodate them,” Nash said. “They either come up with more money down, or we could come up with a second mortgage … or others might not worry that much about the extra interest rate.”

Some of those are trickier than others. For example, a second mortgage on top of a conforming mortgage would probably require a quick exit strategy for the homebuyer — for instance, someone expecting cash from a home that has not sold yet. Still she estimated that for many buyers, the extra interest payments on a nonconforming, $500,000 loan would be $2,600 annually — or about $78,000 over a 30-year loan.

For Boulder’s very high-end market, the change may be negligible, as $460,000 won’t cover much of the price of the home in any event. Those buyers, Nash said, more often than not have cash to put into play when buying the home and securing a mortgage.

“Quite frankly, the (now gone) tax credit had a bigger impact on our markets than this loan limit,” Nash said.

James Simpson, managing broker for Fuller Sotheby’s International Realty of Boulder, said he thought the limit reduction would have a greater effect in markets that saw the highest cap of $729,000, such as in New York or California. There, the cap was covering what actually were moderately priced homes.

“I sold in Los Angeles, where it was $729,000, and that just affected a lot more homes,” Simpson said. “In areas where it is really keeping the market afloat, I think it’s going to hurt a lot more than here.”

D.B. Wilson, managing broker for Re/Max of Boulder, agreed that there are areas of the country where the loan limitation would cause a lot more problems than the Boulder Valley.

“Any pullback on that is not going to help, and it could take a few buyers out of the marketplace,” he said. “But I’m not sure it’s a killer by any means.”

Hotard said that on a national scale, real-estate agents are concerned about scaling back the loan guarantees, but even more concerned about what action Congress may ultimately take with Fannie Mae and Freddie Mac, which buy the bulk of American mortgages in the secondary market.

“We are in favor of a restructuring of Fannie and Freddie to reduce their role but not eliminate (them),” he said. “They play a very important role in guaranteed loans that ensure that credit-worthy homebuyers around the country can actually afford loans.

“In particular, we are concerned with retaining a 30-year fixed rate,” Hotard continued. “You don’t find it anyplace else in the world, and I think it’s partly available because of the federal guarantees on loans and, historically, the role that Fannie and Freddie have played as secondary mortgage purchasers.”

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