Sean Purcell’s Contrarian View: Celebrate Loan-Limit Changes

With the Oct. 1 change in loan limits fast approaching, I have heard nothing but grumbling from real estate brokers, agents, mortgage lenders and buyers. 

The big surprise of the week was an email from Sean Purcell, a mortgage lender of 20-plus years in the area. 

Although I don’t always agree with him on a variety of subjects, I have to consider his views.  His bona fides are impeccable. Not only has he been a successful mortgage lender, but he also graduated from Princeton University with a degree in philosophy, is a managing director at World Wide Credit Corp. and founded Life that POPS, a philosophy site for achieving happiness and success in life (not necessarily related).

He blogs, and he writes for a number of online and national magazines.  He also enjoys training for triathlons while, he laughingly says, listening to the laughter of those who see him doing it.

His email to me is printed here with his permission and does not necessarily reflect my views:

There’s more changes coming to the residential lending world (all those surprised by that, please stand on your head and whistle).  The Fed has decided to maintain their conforming loan limits, while lowering their non-conforming loan limits.  Wait, what?  A little background might help:  In 2008, Fannie Mae’s charter was expanded to allow for loan amounts in high-cost areas (such as San Diego—yeah, us!) to exceed the nationwide conforming loan limit of $417,000.  Loans in San Diego County have most recently been limited to $697,500, thus keeping our beautiful San Diegans in the fine homes to which they’ve become accustomed.

But as of this Oct. 1, the limit is dropping; in San Diego County, it will be $546,250 and some wonder if this isn’t just a steppingstone on the way down to the original $417,000!

As you might imagine, not everyone likes this decision.  The National Association of Realtors has sent out an Emergency Action message to all its members warning this decrease in loan limits will “make creditworthy borrowers unable to access affordable financing.” 

This raises an interesting question:  Should the government be providing affordable financing in high-cost areas? 

Hold on. Let me ask that again with the subtitles translated:  Should you and I be subsidizing mortgages for people buying $800,000 homes?  You’re quite right; I’m being insensitive to the needs of many fellow San Diegans. Let’s move on to the good news.

Because the Fed was unwilling to do loans over the “high cost” loan limit, there were—until very recently— no true Jumbo loans to be found. 

Unlike jumbo shrimp, a jumbo loan actually means what it sets out to mean—a loan amount larger than Fannie Mae’s conforming limits.  If you were buying a home for, oh, let’s say $1.5 million, you were right out of luck unless you were willing to put down almost $1 million of the purchase price.  How’s that for not providing access to affordable housing?

But something strange happened when the government decided to get out of the “high cost area” loan market.  Actual bona-fide, free-market lenders came roaring back. 

Once again, what’s that mean for San Diego County?  It means you can get a loan for much, much more than $607,500 now; you can get a loan for $2 million, $3 million, even $4 million!

Imagine that. Just a couple of months ago, these loans didn’t exist and then—poof, as if by magic—they’re back. 

“Oh, sure,” you're thinking. “These loans might exist again and that’s nice, but what’s the rate?  Can I even count that high?”  Surprisingly enough, if you can count to 5 and one-fourth, you can master the rates on these true Jumbo loans. 

So what’s the catch?  The catch is: These are actual loans originated by actual lenders, which means they expect the buyer to put 25 percent or even 30 percent down.  They also expect the buyer to have a very good credit score. 

Well, those evil banks, is that what they call access to affordable financing?  No, it’s called a risk assessment, and a surprisingly inexpensive one at that.

So while some bemoan the lowering of the non-conforming/conforming loan limits, may I suggest that we celebrate?  Celebrate the reawakening of lenders who provide loans that, while not common, are needed for the move-up market. 

Celebrate common sense underwriting standards as opposed to the same “we need to keep financing affordable no matter the cost.”

Celebrate this as an example of how to actually help the housing market.

The Fed is lowering its loan limits and moving away from the jumbo loan limit. That’s the best real estate news I’ve heard in a while! 

This Week in La Mesa Real Estate

Nine single-family homes here (including Mount Helix) came on the market since Friday in ZIP code 91941. During this same period, eight new single-family homes and three condos were listed in Zip code 91942. 

The most expensive detached home was 10521 Grandview, listed for $865,000. The least expensive detached home is at 4150 Charles St., a 3-bedroom, 1-bath property listed for $265,000.

Wine and Cheese Social Walks the Walk

Who said you can’t do good deeds and have fun at the same time?  Not the owners and staff at the new Windermere SoCal office on Allison Avenue. 

Phil Hessling helped a representative from the Heart Walk collect donations from agents from La Mesa and other East County real estate offices at their monthly Wine and Cheese Networking Social!  Good Work!

Shown in the Attached Gallery

My Pick of the Week is an adorable Spanish-style home at 8779 Washington Ave. in the Village. Built in 1931, it has been completely remodeled and the original hardwood floors refinished and priced to sell.

Sacramento Closing Another Loophole

Gov. Jerry Brown signed Senate Bill 458 into law last Friday.  The bill, authored by Senate Majority Leader Ellen Corbett, will protect homeowners in a short-sale transaction from first and secondary lien-holders from seeking money owed by the seller after the short sale closes escrow. 

This new law gives added protection to the previously passed law SB 931, which required the first lien-holder in the transaction to accept the agreed upon amount as the full payment.

However, this bill did not take second (junior) lien-holders into account.  These two bills will allow Californians in an already stressful situation to at least have some closure after the sale.  The California Association of Realtors calls the bill a “victory for California homeowners.”