So far it seems like Nevada has not yet been affected by this (are there any houses outside of Lake Tahoe above $500,000 in Nevada?!). But desirable areas in California like Monterey and Beverly Hills will be hit by summer’s end.
As the New York Times reports:
“For the last three years, federal agencies have backed new mortgages as large as $729,750 in desirable neighborhoods in high-cost states like California, New York, New Jersey, Connecticut and Massachusetts. Without the government covering the risk of default, many lenders would have refused to make the loans. With the economy in free fall, Congress broadened its traditionally generous support of housing to a substantial degree. “
The big trouble is Fannie Mae is still ‘borrowing’ cash from the Federal Government like it grows on trees
The big trouble is Fannie Mae is still ‘borrowing’ cash from the Federal Government like it grows on trees, getting another $6.2 billion last May, bringing the cost of its rescue to nearly $100 billion. And as you probably already know, many people don’t agree with this.
Result: Republicans and Democrats now agree that the taxpayer should no longer be responsible for homes valued well above the national average.
Starting in October of this year the maximum loan amount that Fannie and Freddie will back is going to drop from $729,750 to $625,500. In other words, after October 1, many luxury home buyers will have to come up with a larger down payment. This will affect high cost areas like San Francisco, Washington DC, Massachusetts, New York and Los Angeles.
Lower Limits on Loans
In February, the Treasury Department outlined a plan to reform the mortgage marketplace. A key area of focus was the reduction of mortgage loan limits. Here is the excerpt:
(Read Full Press Release: Reforming America’s Housing From Treasury Department)
“The conforming loan limit is the maximum size of a loan that Fannie Mae and Freddie Mac are allowed to guarantee In order to further scale back the enterprises’ share of the mortgage market, the Administration recommends that Congress allow the temporary increase in limits that was approved in 2008 to expire as scheduled on October 1, 2011 and revert to the limits established under HERA. We will work with Congress to determine appropriate conforming loan limits in the future, taking into account cost-of-living differences across the country. As a result of these reforms, larger loans for more expensive homes will once again be funded only through the private market.”
I am not sure on how this will affect the Lake Tahoe real estate market. I do know that cash buyers are increasing in the Lake (and in Reno) which will nullify the effect of this bill on these new purchases. But how about for those who bought before 2007?
Heads up. We may get affected by this.
By October this will mean that most to upper-middle-class buyers and luxury estate buyers who would like to finance a portion of their purchase will have to put more cash down down…. IF and WHEN Lake Tahoe will be considered by the Government to be part of the “high-cost” areas. As of now there is no evidence that we’ve been marked.