STATE'S ON SHORT END OF STICK ON LOAN LIMITS.

Byline: GREGORY J. WILCOX

It happens every time this year. California gets snubbed.

Lumped in with some other states where a typical house doesn't cost more than a half a million bucks. (California's median price in October was $548,680).

But that's how Washington views us for purposes of establishing conforming loan limits. That's the maximum size of a mortgage that industry giants Fannie Mae and Freddie Mac can buy or guarantee. Buy a house above that limit, and your mortgage is going to be more expensive.

This limit is determined by the change in the average home price nationally from one week in October one year to a week in October the next.

It is set by law and implemented by the Office of Federal Housing Enterprise Oversight.

And it didn't change from last year's $417,000, which tells you where this residential real estate market is heading.

Down.

This year the average October price declined $501, or 0.16 percent.

It's the first time that's happened since 1993.

Get the idea that the great wind of appreciation is no longer blowing? A year ago the limit was increased 15.9 percent and 7.8 percent a year before that.

But residents of so-called ``high cost'' places -- Alaska, Hawaii, Guam and the U.S. Virgin Islands typically have a loan limit 50 percent higher than those for the rest of the country. That comes courtesy of some nimble legislative toe-tapping.

Some California lobby groups are not amused.

``While we understand the reason for what they did, we stand disappointed once again that the conforming loan limits provide regional discrimination depending on where someone lives,'' said Michael Faust, vice president and chairman of the governmental affairs committee for California Association of Mortgage Brokers.

``A person who happens to live in a high-cost area like many areas of California should not be required to pay more for a loan than someone in a low-cost area.''

This limit can put many buyers into a position of getting a jumbo loan, which typically boost the interest rate by a quarter to a half point.

Using a more realistic approach could save homebuyers nationwide from $375 million to $750 million annually, Faust said.

If that was $100 a month and the homeowner put it in a simple savings account, it would total about $318,000, before interest, in 18 years, he said.

``Now that's real tangible dollars that the consumer isn't sending to a mortgage banking operation. They can use it on themselves.''

Robert Kleinhenz, deputy chief economist at the California Association of Realtors, notes that the OFHEO third-quarter numbers show that California has the nation's third-highest housing price, putting it ahead of Hawaii (seventh) and Alaska (39th).

``It has been a problem ... but even more so the last several years as the median price has increased at a rather rapid rate,'' he said.

Once again there will be a push next year to change this disparity.

The mortgage brokers group, in conjunction with with Rep. Gary Miller, R-Diamond Bar, tweaked Section 123 of HR 1461, the Fannie Mae and Freddie Mac reform legislation.

It would increase the conforming loan limit in high-cost areas to the median home price of that area up to a cap of 150 percent of the conforming loan limit.

Under this proposal, many areas in California would see a conforming loan limit of about $600,000.

The brokers group said that this slight change would significantly lower the costs of financing for California homebuyers and millions of other Americans.

This year a Republican-controlled Senate pushed loan limit reform aside.

Now with Democrats coming into power, Faust is hopeful change will prevail.

But in politics there is no slight change.

There is a general consensus on a couple of topics, though. There is a big need for more affordable housing in this country, especially here.And affordable housing is extremely difficult to build.

So maybe the policymakers should start working on a way to make the housing that's already here more affordable.

Realistic loan limits are a start.

greg.wilcox(at)dailynews.com

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