A SILVER LINING IN HOUSING BLUES MORTGAGES: LIMITS RAISED FOR GOVERNMENT-BACKED LOANS IN LOS ANGELES, VENTURA COUNTIES.

Byline: Barbara Correa

Staff Writer

The housing-market slump might be depressing for homeowners losing equity.

But for renters who want to own, it's a glimmer of hope: Maybe buying a house in Los Angeles is not a pipe dream after all.

Last week, the government announced it was raising the maximum limits on mortgages backed by the Federal Housing Administration and government-sponsored companies Fannie Mae and Freddie Mac. That means first-time borrowers priced out of the market might finally be able to get in, and homeowners paying high interest rates can look forward to being able to lock in cheaper loans.

The new loan limits apply to 14 high-cost counties in California, including Los Angeles County, where the new maximum government-backed loan amount is $729,750. Previously, the maximum was $417,000 for loans guaranteed by Freddie Mac and Fannie Mae, and $362,790 for FHA-backed loans.

"On the purchase side, it will help people qualify for a loan they may not have been able to get before, and it will put pressure on helping us find the bottom (of the market) and get everything moving again," said Robert Satnick, residential president for the California Mortgage Bankers Association and owner of Prime Financial Services in West Hills.

"It will be huge as far as our local economy," said Michael Rand, owner of Michael Rand Associates Professional Mortgage Services, also in West Hills. He said many people with adjustable loans will now be able to refinance and lower their payments.

"Say someone has a $650,000 loan right now, and they are at 7.5 percent on a 30-year fixed. Their payment is $4,544.89 a month. I can lower that person to 5.5 percent interest, and their payment has dropped to $3,690.63. They save $854.26 a month."

Mortgage lenders have been anticipating the changes and have backlogs of loan applications ready to be processed under the new loan limits.

"What was so shocking is not that there was a housing-market correction," said Gary Painter, director of research at the Lusk Center for Real Estate Development at the University of Southern California. "What was so shocking is the whole secondary market for the jumbo sector -- even for top-quality credit -- just disappeared.

"So certainly there is hope that being able to sell these mortgages to the Fannie Maes and the Freddie Macs will bring liquidity, so people who do qualify will be able to enter the market."

The new jumbo loans won't come without some restrictions, however. The government mortgage companies may tighten loan-to-value rules, for example, which could require larger down payments. And interest rates on the new, larger loans may not be as low as they are on the smaller conforming loans. Lenders are expecting more details from the FHA soon.

In addition, the higher loan limits -- part of the Bush administration's broader economic stimulus package -- will expire at the end of the year.

"This is a good step toward recognizing California as a high-cost state. We want Congress to make (the loan limits) permanent," said Robert Satnick of the California Mortgage Bankers Association.

Hawaii's limits are around $650,000.

David Curry, a loan officer with Platinum Capital Group in Manhattan Beach, said exuberant buyers still need to heed the lessons learned during the subprime meltdown and be careful not to take on more mortgage than they can handle.

"Regardless of what types of loans are out there, there will always be a way to abuse the system. But there will be good opportunities for first- time buyers who actually have the income for these homes."

With pent-up demand for credit, and with the new rules set to expire by the end of 2008, lenders are predicting a flood of new loan applications and refinancing. One loan officer even said that, with all the layoffs in the industry since the subprime-market implosion, he's concerned whether there will be enough lenders to meet the onslaught.

Not that they aren't welcoming the business.

"It's definitely going to stimulate buyers to jump off the fence," said Tom Cortesi, a loan officer at First Financial in West L.A. "I've been getting lots of calls about it."

barbara.correa(at)dailynews.com

818-713-3662

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Source: Department of Housing and Urban Development