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Realty Views: Good News On Lending

Homeowners and homebuyers have some good news to look forward to in 2020. Most of the recent announcements by the federal agencies that oversee lending and banking recently made moves that will widen the availability of mortgages in a number of loan categories and should enhance the financing climate for housing in general.

On top of the Federal Reserve lowering its lending rates to institutions last year – which translated to lower cost consumer mortgages – another drop is anticipated in 2020 that could lower the cost of home loans even further.

In addition, the Mortgage Bankers’ Association has announced that mortgage credit availability jumped in November for the first time in months. The government’s Mortgage Credit Availability Index increased by 2.1% in November over October in 2019.  This index, which measures the availability of Federal Housing Administration, Department of Veterans Affairs and U.S. Department of Agriculture mortgage products, led all components with a 2.9% increase – its first since February last year. The conventional index that measures activity in both conforming and jumbo loan categories was also up in November, with conforming loans up 0.2% and jumbo loans up by 2.2% over October.

But the good news on the consumer level is that the Federal Housing Finance Agency (FHFA) is raising the conforming loan limits for Fannie Mae and Freddie Mac to $510,400 – up from the 2019 limit of $484,350. This is the fourth straight year the FHFA has increased the limit following a decade (2006-2016) of keeping them the same.

Back in 2008, the Housing and Economic Recovery Act (HERA) established a baseline loan limit for conforming loans at $417,000 and mandated that, after a period of price declines, the baseline loan limit cannot rise again until home prices return to pre-decline levels.

In housing data compiled by FHFA, home prices increased by 5.38% on a national basis from the third quarter of 2018 to the third quarter of 2019, so the national loan limit is raised by the same%age. For high-cost areas, such as Los Angeles and Orange Counties, the new ceiling on conforming loans is going up to $765,600 – the maximum anywhere in the United States. This is calculated for areas (counties) in which 115% of the local median home value exceeds the baseline conforming loan limit ($510,400), making the maximum loan limit higher than the baseline loan limit. HERA established the maximum loan limit in high cost areas as a multiple of the area median home value, while setting a “ceiling” on that limit of 150% of the baseline loan limit. Riverside and San Bernardino will have the baseline limits of $510,400, while San Diego will move up to $701,500.

There is also good news for older borrowers who want to take advantage of the FHA Home Equity Conversion Mortgage (HECM) program, commonly known as a reverse mortgage, which allows borrowers aged 62 and over to pay off a conventional loan and/or pull equity from their home without a monthly payment. The loans are made by private mortgage lenders and backed by the federal government, which guarantees that borrowers will never owe more than the house is worth. The loan is in place as long as the borrower lives, so long as they make property tax and insurance payments, keep the home in good repair and retain it as their primary residence. The loan balance increases monthly as the principle and interest payments are added to the loan instead of being paid every month.

In 2020, the reverse mortgage program will increase its loan limits to $765,600 from the previous year’s limit of $726,525. This is the fourth straight year that the limits for this type of mortgage have been raised. Since 2018 the ceiling has been raised by $100,000. But unlike Fannie and Freddie’s loan limits and FHA’s typical mortgage limit with payments, there is no geographic variation for the Reverse Mortgage loan limit. It is $765,600 for all parts of the U.S., including the high cost areas and Alaska, Hawaii, Guam and the U.S. Virgin Islands, where traditional mortgage limits far exceed the rest of the country.

It is also noted by the FHA that the HECM’s higher loan limits may help borrowers with larger existing mortgages to qualify for the reverse mortgage program who would not have been able to in the past. Now, with a higher loan amount, there may just be enough money in reverse mortgages to make it work.

It appears that with these changes in the lending market things are aligned for continued growth in the New Year.

Terry Ross, the broker-owner of TR Properties, will answer any questions about today’s real estate market. E-mail questions to Realty Views at terryross1@cs.com or call (949) 457-4922.

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