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Hat tip to our friend Keith at Housing Panic, and you should be reading Realty Check by CNBC’s Diana Orlick, its a great blog.
The Terminator, California Gov. Arnold Schwarzenegger sent a letter to Congress requesting an exception for California from the Fannie Mae and Freddie Mac federally-mandated loan limits. The current loan limit for conforming loans is $417,000 in California. Schawarzenegger argues that California has market conditions similar to high-cost states such as Hawaii (whose loan limit is 50% higher than the remaining states).
You could’ve seen this coming as the Governor put it in his letter:
“The current GSE conforming loan limit for lenders willing to originate conforming mortgage loans for median-priced homes in California is $417,000; however, according to the California Association of Realtors, the median price of a single family residence in July was $586,030. Again, this disparity makes these products practically irrelevant in California,”
As Diana Orlick of CNBC Realty Check writes:
Still, when I think about California, I think about a state chock full of homes, chock full of new construction, and chock full of investors who wanted to make a few bucks off of all of that. I think of massive condo complexes and borrowers who took advantage of the easy cash afforded them by unscrupulous or heady lenders. Yes, no question, affordability in California is now out of whack. But when you think about the average California homeowner and you think about the average Alaskan homeowner, are you really seeing the same guy/gal?
While there is a land issue in the most desirable areas of California, does the conforming limit need to be pushed up for the state? I don’t know - but fueling unsustainable price to income levels through GSE loan limit increases doesn’t seem like the most prudent step. Conversely, if Hawaii and Alaska are eligible why not the Golden State? Finally - since the government is already on the bail out war path, the argument is probably mute as it is another arrow out of the quiver that will be used to prop up housing.
What do you think?
Morgan:
I think it should be raised. There are plenty of areas around the country where $417k doesn’t get you much. However, we do have to be careful that we don’t further encourage speculators and investors, but it makes no sense that first time/average home buyers in more expensive parts of the country are stuck with non-conforming loan products.
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