While local housing industry leaders yesterday welcomed the progress of the housing bill, some analysts say it's unclear how effective the measure will be in righting the market.
Much of the bill's success will depend on lenders' willingness to forgive bad loans and agree to less onerous terms for borrowers. Additionally, rising interest rates could complicate efforts to rescue homeowners.
But real estate professionals called the bill a step in the right direction.
“Anything they do to help housing, we're for,” said Beth Peerce, treasurer of the California Association of Realtors. “We think this certainly should help in reducing the number of foreclosures.”
One provision of the House-approved measure that will affect high-priced markets such as San Diego is a permanent increase in the conforming-loan limit to $625,000, up from $417,000.
But the figure for loans with the best rates is less than a temporary limit set by Congress last spring at $729,750, which is due to expire at the end of the year. Observers say the higher limit could also drive interest rates slightly higher than has been the case for conforming loans.
Gordon Park, operations vice president at TCS Mortgage in San Diego, called the change a “mixed blessing,” because it remains unclear how much higher mortgage investors expect rates to be.
Housing experts had hoped the higher limits would have made things easier for buyers in high-cost areas. But Park said tighter lending standards have offset any improvements.
Even before Congress acted, the average interest rate for 30-year fixed-rate conventional conforming loans was on the rise, reaching 6.81 percent yesterday from 6.32 percent a week earlier, according to HSH Associates, a New Jersey company that publishes consumer rates.
The increase in rates “feels rather painful, especially to audiences who became accustomed to interest rates in the fives or, in the case of adjustable-rate mortgages, even below,” said Keith Gumbinger, vice president of HSH. “There is an entire class of home buyers who don't know normal.”
One reason that interest rates are rising is that mortgage originators are having a difficult time finding buyers for their loans, which typically are bundled into securities and sold to investors, Gumbinger said.
“No one wants to buy that paper,” Gumbinger said. “You have to pay a much higher yield to attract the meager amounts of capital. Higher yields means higher (costs) to borrowers.”
Dean Baker, an economist and co-director of the Center for Economic and Policy Research in Washington, said rising interest rates will make Congress' job much harder.
“It is one of the issues I wish Congress had taken more seriously,” Baker said. “People seem to be working under the assumption that rates will remain where they are. We got spoiled. We had a period of low mortgage rates, but you can't assume we are going to have 6 percent forever.”
Another factor working against the rescue plan is that some slumping housing markets, such as San Diego County, likely have yet to hit bottom.
“If you see a significant rise in interest rates, a lot of people who could have skated . . . will find that they can't make ends meet,” Baker said.
One provision of the bill, which is expected to be approved by the Senate and signed by President Bush next week, aims to help owners facing default and foreclosure by letting them switch to loans backed by the Federal Housing Administration. However, the program is voluntary on the part of the mortgage holders, who would have to write down their loans at 90 percent of existing value.
Congress has authorized the FHA to set aside $300 billion in new guarantees for new loans to troubled borrowers. But industry leaders say the actual number of people helped may be much lower because so many cannot afford new loans at rates higher than they originally received.
Another provision would grant an interest-free, $7,500 tax credit to first-time home buyers. To qualify, they would have to earn no more than $75,000 as singles and $150,000 as couples. The credit would apply to purchases from April 9 this year to July 1 next year and have to be repaid over 15 years.
Brian Yui, CEO of HouseRebate.com, a San Diego real estate brokerage that currently specializes in properties in default or foreclosure, said the tax credit may not make as much difference in San Diego as elsewhere.
“I would say it's definitely going to help some people,” Yui said. “But I think the politics aren't going to match the actual impact affecting people.”
Roger M. Showley: (619) 293-1286; roger.showley@uniontrib.com
