Originally published Friday, November 4, 2011 at 10:00 PM

Lower mortgage-loan limit has yet to kill off market

Potential homebuyers are now looking for financing from generally higher-cost, private sources with stricter lending guidelines if they need to borrow more than $506,000.

Special to The Seattle Times


Mortgage: A loan secured by real estate

Conforming loan: Residential mortgage loan that meets Fannie Mae or Freddie Mac standards

Nonconforming loan: Residential loan larger than Fannie or Freddie standards.

Federal Housing Administration: Agency within the Department of Housing and Urban Development that insures mortgage loans.

Fannie Mae: Short for Federal National Mortgage Association, federal government sponsored agency that buys mortgages and resells as securities.

Freddie Mac: Short for Federal Home Loan Mortgage Corporation, the federal government-sponsored agency buys mortgages and resells as securities.


• Increase down payment to lower amount needed to borrow

• Lower the price range

• Move on to different neighborhood

• Obtain a second mortgage

• Ask financial institution where you have accounts if they do mortgages

Historical numbers:

In 1994, home loans over $203,000 were considered jumbo loans. In 2005, jumbo loans started at $359,650.

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After a federal program to help homebuyers finance their mortgages expired, some in the local housing industry felt as if they were on a jet heading toward a rough landing.

They braced for the impact and hoped for the best.

And now it appears that there's been a safe landing for the already-struggling industry, which had wondered if the end of the program to finance or refinance the so-called "jumbo" mortgages was going to cause buyers to head for the emergency exits.

Lenders say historically low interest rates have softened the blow and kept most buyers in the market.

"Most of the clients are still qualifying and still purchasing houses and not getting out of the market," says Randy Porter, branch manager for Bellevue-based Rainier Mortgage.

That observation is cautiously being seconded by real-estate industry insiders.

"I haven't heard from either of the two offices I manage that it's affected any sales," says D'Ann Jackson, managing broker for John L. Scott offices at Seattle Center and on Mercer Island. "That's not to say that it hasn't."

Begun in 2008, the program boosting the size of federally backed mortgages up to $567,500 was designed to assist homebuyers in higher-priced markets across the country, including King and Snohomish counties.

The withering mortgage market meant buyers were paying high rates or being denied financing from private sources. After extending the program since that time, Congress ended it this year.

In King, Kitsap and Snohomish counties, the maximum size of a mortgage backed by Freddie Mae, Fannie Mac or the Federal Housing Administration, is now $506,000. according to the National Association of Realtors (NAR). In Kitsap County, the cutoff point is $307,050.

Nationally, 5 to 10 percent of consumers "are going to have to pay higher mortgage rates as a result," says NAR spokeswoman Sara Wiskerchen. "Tight credit is already a concern and this will probably prevent even more buyers from becoming homeowners."

Loan limits are dropping in 669 counties across the nation, she notes, "so it's impacting everywhere."

In the local area, communities that could be most affected include Mercer Island, Newcastle, Sammamish, Cougar Mountain and East Queen Anne, according to Tim Ellis, who tracks trends for Redfin, a Seattle-based real-estate agency.

Ellis found that those communities, at least 10 percent of home sales in the last six months were in the $632,500 to $709,400 price range. Comparable figures for Seattle were 3.9 percent, Bellevue, 8.2 percent and Redmond, 8.5 percent.

That's not the only way to view it. At the National Association of Homebuilders, economist Robert Dietz says the loan-limit changes could influence all housing stock in the targeted price range. He reasons that because such housing will cost more to finance, the actual cost of purchasing the house rises, making the it more difficult to sell.

Jackson says she understands that not every buyer will be able to finance the additional expense of the mortgage — even though current interest rates are "unbelievably low, which really helps."

Some homebuyers may even be in for a pleasant surprise.

A few weeks ago, a couple wanted to buy an Eastside home but realized they were not going to make the deadline for a federally backed, jumbo mortgage from Freddie Mac or Fannie Mae. Porter said the couple was able to secure a mortgage — at a slightly lower rate than they would have paid for the federally backed loan.

The guidelines for the privately financed mortgage were stricter than federal guidelines, Porter notes, requiring the homebuyers to have more resources after closing.

"It's a possible solution," says Porter. "But it just depends on their qualifications. Not everyone is qualified, of course."

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