Lisa Simpson
Aug 14,2009
In: Finance

High End Buyers Are Being Pushed Out of the Housing Market

It’s been four months since the Obama government has come up with the home rescue plan. Mortgage loans are being rewritten and many borrowers are availing of these more affordable loans. But lenders are not taking one class into consideration at all. This group forms the house owners who are saddled with higher priced loans.

Under the Obama plan, this group is not entitled to mortgage modification. Even if they refinance, they will not qualify for any reappraisal. Moreover, today’s lenders have become more wary about lending. Hence, residents who have homes priced at $730,000 or above may have a trying time. They may find it difficult to locate buyers who can make 30 per cent down payment and another 180 days of advance payments as desired by banks.

The fallout: purchase and sale of high priced homes have almost come to a stop. This phenomenon can even stand in the way of the recovery of the housing market. As buyers get pushed out by absence of financing, the market gets inundated by high-priced homes. This is even threatening to pull down home price in the mid-tier range.

The chief economist with the National Association of Realtors (NAR) Lawrence Yun, says that the market recovery has to happen at all levels. A weakening of the high-end market has to be followed by reduction in prices of middle-range homes. The problem of high-priced homes finding fewer takers has come to threaten entire Middle America.

Another phenomenon that the Americans are coming across is jumbo loans. These big loans come in two varieties. The first type is the “conforming loan” ($417,000 and $729,750) which can be sold to mortgage finance biggies like Fannie Mae and Freddie Mac. These financial powerhouses also guarantee these loans when they resell them to investors. The situation gets more complex after this.

The super jumbo loans (above $729,750) are not backed by the above mentioned financial giants. What is more confusing is that the concept of “conforming jumbo” and “super jumbo” depends on the location. While Fannie and Freddie will guarantee loans of $729,750 in San Francisco, in Atlantic City the maximum that will be guaranteed is $453,750.

Here is where the problem comes in. Lenders will only lend as much as Fannie and Freddie guarantee. The secondary market for non-conforming jumbo loans is therefore non-existent. Hawaii, New York, California and District of Columbia have the highest numbers of jumbo mortgages.

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