Building Industry Association applauds action to increase federal conforming loan limits

The Building Industry Association / Desert Chapter applauds President Bush and the U. S. Congress for their swift action to enact an economic stimulus package including a provision designed to make financing costs for homebuyers more affordable.

"This important action of the federal government comes not a moment too soon," said Fred Bell, Executive Officer of the Building Industry Association, Desert Chapter. "Depressed home sales and housing production have made a major impact on the economy at the regional, state and national level. We're hopeful that this critical federal action will begin to turn things around."

HR 5140, the economic stimulus bill passed by Congress contains provisions that increase what is known as the "conforming loan limit" - the maximum amount of a home loan effectively guaranteed by the federal government. In the world of lending on home purchases, the government guarantee means a lower interest rate and, correspondingly, lower borrowing costs. The current limit ($417,000) is seen as too low to help homebuyers in high-cost markets. Raising the loan limits up to $729,250 means lower-cost home-purchase financing in California for previously priced-out borrowers and a boost for the economy. According to the National Association of Realtors, doing so will generate 350,000 additional home sales nationwide and produce $42 billion in economic activity.

It's estimated that for half the home purchases in California, buyers are forced to use non-conforming ("jumbo") loans which carry higher borrowing costs - on average a full percentage point higher than the rate of so-called "conforming" loans backed by Fannie Mae and Freddie Mac, known as "government sponsored enterprises" (GSEs). One percentage point in interest on the current median priced home means about $150,000 more in financing costs over the life of a 30-year loan.

"California home prices are the highest in the nation and when it comes to financing purchases, buyers pay a premium," Bell said. "This change in federal housing policy is long overdue."

Of equal importance is the timing of the change. Most in the industry believe that many would-be home buyers - otherwise poised and prepared to enter the market - are sitting on the sidelines waiting for home prices to bottom out. A long wait means continued declining prices and, correspondingly, increased foreclosures and the ultimate economic catastrophe.

California already faces a huge, multi-billion-dollar hole in its budget. Low housing production has, according to estimates, kept nearly $2 billion in tax revenues from flowing to the state treasury in 2007. According to the California Department of Finance, the state should be producing over 220,000 housing units every year just to meet the need, but production for 2007 came in at 115,000 - nearly half that amount. Likewise, home sales continue to slide as do home values, which dropped 15 percent last year.

"With the prospect of an even worse year in 2008, the government had to step in and do something," Bell observed.

The Desert Chapter of the Building Industry Association also applauds the leadership of Governor Arnold Schwarzenegger for leading this effort in California to get Congress to act on the stimulus package and, in particular, the conforming loan limit increase.

"The Governor deserves a tremendous amount of credit," Bell said. "By getting in early and standing by this issue until the Congress and the President reached an agreement, the Governor showed how concerned he is about California's economy and, particularly, its foundational real estate sector. We are grateful for his leadership."

The work isn't over when the President signs HR 5140. Not only are the federal government and lenders going to have to move quickly to institutionalize this important change in policy, Congress will have to return to the issue again later this year.

The current loan limit increase expires December 31, 2008.

Copyright Desert Publication, Inc. and Sharon Apfelbaum Feb 19, 2008
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