Backing for pricey mortgages expiring

Some higher-end home buyers might have to pay more or face giving up on their purchases starting Oct. 1, when the federal insurance limit for mortgages reverts to a lower level.

For the past three years, the federal government has been guaranteeing mortgages of up to $729,750 for high-cost areas such as Long Island, but that ceiling is set to fall to $625,500.

For the same-priced house today, a buyer in October might have to scrape together more than $104,250 up front to avoid borrowing above the federal limit. Anything above is a “jumbo” loan, which has a higher interest rate, now about .5 percent more than prime.

At first, it seems only a narrow range of buyers would feel the pinch but not so, said Patricia Bretone, associate broker at Daniel Gale Sotheby’s International Real Estate in Huntington.

Young buyers and families trade up and seniors downsize, she said, so one delayed deal holds up a chain of sales. Also, buyers now eyeing upper six-figure homes might look at less pricey ones, leading to a glut in higher-end listings, she said.

“It’s another obstacle in an already challenged market,” said Bretone, who’s advised clients to act soon. “The result of this happening will be diminished demand. How much? I don’t know . . . As a result of demand diminishing, prices may come down further.”

Many buyers put down anything from 3.5 percent to 25 percent. Using that range, 1,451 deals, or about 8 percent of the past year’s closings, could have been jumbo if the limit was $625,500, said Jonathan Miller, a Manhattan-based appraiser.

The higher limit was meant as a temporary booster to the housing market when Congress approved it under the Economic Stimulus Act of 2008. More buyers could avoid jumbo rates and expand buying options. The raised limit sought to fuel the higher-end market, just as the federal home buyers tax credit fueled the lower end.

Some lawmakers, including Rep. Gary Ackerman (D-Roslyn Heights), have introduced bills to extend the higher coverage, but they don’t sound cheerful about success. Congress reconvenes next month, when the budget takes priority. Ackerman said he’s “hopeful” and is trying to attach the proposal to a must-pass bill.

Some lenders will stop taking applications as early as this week for loans near the limit.
“They need to close loans prior to that period of time,” said Bob Walters, chief economist at major online lender Quicken Loans, which won’t take such applications beyond this month. “So this really goes into effect the next 30 days.”

At Mortgage Master, a lender and broker with a Westhampton Beach office, branch manager Chad Vanderslice said 40 percent of his loans are butting against the sunsetting limit. Clients have been fast-tracking closings, he said, making August unusually busy.

“People want them done and get the good rates,” Vanderslice said. “One of them is actually closing on a $725,000 refinance. She’s saving $1,200 a month with her new rate. She’s not nervous, but she was waiting . . . to see where the bottom of the rate market was.”

Photo: Jonathan Miller, a Manhattan-based appraiser.

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