Mortgage Bankers Looking for Lending Options in High Cost Markets

If you are looking to buy or refinance a house in New York or California you may find financing that mortgage nearly impossible. Temporary loan-limit increases for Fannie Mae and Freddie Mac, approved by Congress earlier in the year are set to expire.

In July, with the passage of the Housing and Economic Recovery Act Fannie Mae and Freddie Mac kept loan limits at $417,000 while expanding high-cost area limits, based on median home prices, as high as $729,500. However, these provisions are set to expire at the end of the year--as the mortgage market and lending continue to get worse.

The Mortgage Bankers Association's residential board of governors, gathering for their annual meeting, are expected to vote on a recommendation to increase the Fannie Mae and Freddie Mac purchases and guarantee limits on single-family mortgages to $625,500. This would represent an almost 50 percent increase over the current limit of $417,000.

Mortgage bankers are reporting that lending in the non-conforming (above Fannie and Freddie limits) market has essentially stopped.

Speaking to Bloomberg, Garry Cipponeri, senior vice president of Chase Home Finance and head of the mortgage bankers' capital markets committee feels the move "will be stimulative," explaining the need for liquidity in a market that has only gotten worse with the tightening of credit standards.

The unavailability of credit in these high-cost housing markets will only continue to aggressively drive down housing prices and potentially accelerate foreclosures.Unavailability of credit to fund refinancing and purchases will only accelerate the infamous mortgage "put-option." Forcing the homeowner to simply abandon the mortgage.

These fears are particularly acute in this segment of the market as many of these homeowners used more exotic financing options such as interest-only and option ARM mortgage products. Products that are in high default as they adjust to significantly higher payments.

Any decision to increase conforming loan limits would now require Congressional legislation according to Federal Housing Finance Agency (FHFA) Director James Lockhart, the new oversight agency for Fannie Mae and Freddie Mac.

Home loan originations are tracking and contributing to the housing prices free-fall, expected to drop nearly 20% this year to $1.9 trillion--nearly half of the 2003 record high-point.