Stimulus Plan Aids Buyers of High-Priced Homes:

SAN FRANCISCO — Elizabeth and Ben Kilgore are back in the real estate market. All it took was a little-publicized section of the economic stimulus package President Bush signed into law last week that lowered the borrowing cost of buying a more expensive home. The Kilgores, who live in Tiburon, Calif., just north of San Francisco, are looking for a larger home in town for their growing family. Three years ago, when they bought their first home, they resigned themselves to buying a condominium because it meant taking out a mortgage they knew they could manage. “This will push us into a price range that’s now financially possible,” said Ms. Kilgore, a real estate agent in Marin County. And if the limit on loans backed by a government-backed housing finance entity like Fannie Mae is raised from $417,000 to the full $729,750 she has been hearing about, Ms. Kilgore said, “we will be able to get a 30-year fixed mortgage for less than what we’re paying now plus our homeowner’s dues.” The temporary change in the loan limits is not about to revive the housing market on its own. But in some of the higher-priced regions of the country that have been hit hardest by the flagging real estate market, it could make a big difference. For if anything is going to breathe new life into the local housing economy in places like the San Francisco Bay Area, San Diego, Washington and Boston, it is home buyers emboldened by the prospect of larger loans at lower interest rates. Daniel Billett, a mortgage broker in Seattle, where homes in the downtown area sell for a median price of around $400,000, said that he, like dozens of people he knows, is poised to refinance an existing jumbo loan at a lower interest rate. “As soon as the loan limits are implemented and lenders are accepting applications. I’ll be the first in line,” said Mr. Billett, whose company, Response Mortgage Services, has been receiving a steady stream of inquiries from clients in recent weeks. “I’m going to save hundreds, and I mean hundreds, of dollars every month on my current jumbo loan, by switching to a conventional loan.” For years, rates on jumbo loans, those for more than $417,000, were only slightly higher than rates on conforming loans at or below that limit. But now, with the interest rate on conforming loans at around 6 percent, sometimes less, jumbo loans are at least a percentage point higher. “The difference is as big as it’s ever been,” said Bart Welles, a mortgage broker in Larkspur, Calif. For a high-priced home, 1 percent can make a big difference. A monthly payment on a jumbo 30-year loan of $729,000 at 7 percent would be $4,850. Monthly payments on a conforming loan of the same amount, at 6 percent, would be $4,371, a $479 difference. As the credit squeeze deepens, lenders have been reluctant to underwrite jumbo mortgages. That leaves houses languishing on the market, further depressing an already distressed housing market. The change in loan limits, which allows the federal housing agencies Fannie Mae and Freddie Mac to purchase or guarantee the mortgages, is intended to encourage lenders to write more mortgages because they can easily sell them to the agencies. It should also stimulate house buying and mortgage refinancing. As the thinking goes, once people start borrowing money, they will set back into motion the economic machine of brokers, agents and lenders that has been stalled for the past year and has helped stall the overall economy. “Of all the various strategies proposed to help the housing market,” said Gus Faucher, director of macroeconomics at Moody’s Economy.com, “I think this one has the greatest potential, particularly for expensive housing markets.” The change in loan limits will go into effect sometime in early March and will last at least through the end of the year. In areas where median prices do not exceed $271,050, such as the entire state of Alabama, the basic loan limit will be $271,050. In areas where the median sales price is higher, the limits will rise to 125 percent of the median price, not to exceed $729,750. (The rules defining which locations qualify and where the borders of the areas will be drawn to determine the appropriate median price are to be written by the federal Department of Housing and Urban Development.) High-priced housing markets — particularly much of coastal California, with some of the most expensive real estate in the nation — would benefit the most. In a state like California, or in the Northeast and Northwest, where home prices far exceed the national median of about $206,000, jumbo loans are a significant portion of the mortgage market. In San Francisco, where the median home price is $777,000, 35 percent of all loans were nonconforming, according to First American CoreLogic, a data and analytics company in Santa Ana, Calif. The anticipated stimulative impact is all the more important because prices are falling sharply. Prices have dropped 20.4 percent over the past year in Contra Costa County, east of San Francisco, and 13.1 percent in neighboring Alameda County, according to DataQuick Information Systems. Indeed, California is probably the state hardest hit by the housing slump. As inventories rose in most cities, the median price dropped 16.9 percent from May to December, according to DataQuick. (Prices are still high; the California Budget Project, a public policy advocacy group, estimated that a family would need an annual income of $196,878 to afford the median-priced home in San Francisco.) Across the state, homeowners stuck with high interest rates and potential homeowners who are still searching are watching the situation closely. The window in the new law is short. But Mr. Faucher, the economist, said that if problems in the market continued, particularly in expensive markets, he would not be surprised to see the higher loan limits extended. “There’s nothing set in stone,” he said. At first, the strongest interest is expected to come from people refinancing existing loans. In Berkeley, Calif., where the median home is worth about $776,000, MPR Financial, a mortgage brokerage firm, has received dozens of calls from clients asking about the possibility of refinancing their existing loans. “Quite a few people who got their loans when the rates were higher have called in,” said Paul Riccardi, the firm’s president. “We tell them we have their application, and we’ll have it ready to go.” In other places where housing prices are high, there is a similar anticipatory buzz about a change in the conforming loan cap. In San Diego, real estate activity has dropped off noticeably in the past year. According to DataQuick, the number of homes sold in San Diego in January dropped 34 percent from a year ago. A change in the conforming loan limit could give a much-needed boost to the market, said Jim Abbott, a real estate agent there. “The availability of jumbo loans was so easy,” Mr. Abbott said. “Now they’re not, and it’s really exacerbated the problem. But I don’t think anyone is counting on it until it actually happens.” Jim Byrnes, a real estate agent in Palo Alto, Calif., where Zillow.com pegs the median home value at $1.4 million, said he had two clients who were first-time home buyers and were waiting for the new law to take effect. “They’re literally waiting on the sidelines to see what happens,” he said. “If they can get a better interest rate it will make their path so much easier.” Of course, prices for some houses in certain California enclaves and other luxury locations remain so stratospherically high that a change in the conforming loan limit, no matter how drastic, would have little effect. “It won’t make so much difference here,” said Edna Sizlo, a real estate agent in Santa Barbara, Calif., where the adjacent suburb of Montecito has homes valued at a median $4.1 million, making them among the most expensive in the nation. “There’s nothing you can even live in for under $1 million.”[From Internet]