Prior to the most recent economic down turn, mortgage lending institutions like Fannie Mae and Freddie Mac were backed by the Federal Government by insuring the mortgage loans of a home buyer. Of course, there were limits to the amount of the mortgage and the price of the home being purchased. When the housing prices stated to fall, and the mortgage industry needed some financial assistance, the Federal Government covered the losses. This became commonly known as “Bail Out Money”.
The limit for insured mortgage loans is about to be lowered even further. No longer will the Fed be insuring higher-end mortgages. The Federal Housing Administration and both Democrats and Republicans agree that there is no right to a Federally backed mortgage if the mortgage is beyond the national average. In other words, if you want to live in a very expensive home, the lender will be free to make that high of a mortgage, or not, without the assistance of the Fed.
What does this mean to the average San Diegan?
In San Diego, this means the housing crunch will no longer be limited to homes valued at under $500,000. The higher-priced homes in pricey neighborhoods will now feel the pressure as well. Prices in those areas will drop considerably as the ability to purchase those homes will be less because the lenders will be very cautions about lending large amounts for mortgages. Additionally, the cost of lending in the form of interest rates will also go up. This will result in more higher-end homes going into foreclosure, and the ability to purchase or refinance those homes will be lessened.
More bad news: More affluent home buyers are about to get hit with watching their home value drop, and new borrowers will be required to come up with down payments of 30 percent or more while showing greater assets, higher credit ratings and lower debt-to-income ratios.
It may be a great time to stay in the smaller home that you now own and wait to upgrade to that larger, more expensive home.
