Homeowners anxious for new rates

Lenders' phones are ringing in Sonoma County with questions about the availability of cheaper mortgages envisioned in the housing stimulus plan signed last week by President Bush.

But it could take a month before the loans are available and the effects of the plan remain uncertain.

Key questions -- including the size of the loans that will be offered in Sonoma County -- will be answered in the coming weeks as federal housing officials implement the plan.

"The lending community is on pins and needles in anticipation of increased loan activity," said Joan Picard, who tracks the issue for the Redwood Empire Mortgage Lenders Association. "We've been very busy. The call activity has increased. We can't tell them much right now."

The measure is designed to make mortgages cheaper by temporarily raising the $417,000 limit on so-called conforming loans. These loans usually carry lower interest rates because they are backed by the government-sponsored mortgage companies Fannie Mae and Freddie Mac.

But in Sonoma County -- where the typical house costs $500,000 -- many homes are too expensive to qualify for this type of financing. As a result, borrowers routinely must take out "jumbo" or non-conforming loans, which have higher interest rates, to buy or refinance a home.

The new loan limits will vary by geographic region and be pegged to 125 percent of an area's median sales price. The U.S. Department of Housing and Urban Development has until March 13 to decide what loan limits apply in Sonoma County and other metropolitan areas. Then, lenders must decide what to offer and how much to charge.

"Our people started crunching the numbers as soon as it looked like it was going to pass. In your area, it's going to be a very large increase," said Bill Glavin, a spokesman for the Federal Housing Administration.

The new loan limit could rise to $625,000 in Sonoma County, based on earlier congressional proposals, Picard said. It could reach as high as $729,750 in the Bay Area's costliest counties.

The higher loan limits would revert back to current levels on Dec. 31, unless the changes are extended.

Pushing up the conforming loan limit still could mean higher prices for larger mortgages compared with loans closer to the old limit, analysts said. The difference, however, should be less than the current spread between jumbo and conforming loans, they said.

"We don't know if that is going to be a pricing issue. That's why we have to wait a few months to see how they're going to structure these," Picard said.

Lenders are charging a premium on jumbo loans as home prices tumble and foreclosures soar. Jumbo loans are considered more risky by investors, which lenders rely on to purchase mortgage-backed securities.

"Conforming loans are really the only loans being sold in the secondary market. Raising the conforming limit brings a lot more confidence into the mortgage market. Right now, one of the biggest problems is investors are charging a very large premium for loans that are not conforming," said John Mechem, spokesman for the Mortgage Bankers of America.

Raising the loan limit should boost home sales and could help some homeowners refinance, lenders and industry officials said.

"By bringing more loans under the conforming limit and thus capturing more homes in high-priced areas you're going to make mortgages cheaper," Mechem said.

Home buyers are expected to benefit most. For instance, the monthly mortgage payment for the typical Sonoma County home today costs about $400 more with a jumbo loan compared with a conforming one.

But buyers must have the income, credit and some money down to qualify for a loan because subprime and other riskier mortgages that helped stoke housing's boom have largely disappeared during its downturn.

"I think it's just going to stabilize the housing market, but it's not going to turn it around. It will contribute to hitting the floor by getting some of these properties off the market," Picard said. "But one of the biggest problems in Sonoma County is we don't have the job base for people to afford the homes. That hasn't changed. That's why this county is suffering so bad."

Refinancing is more difficult because Sonoma County home prices have fallen 19 percent since housing hit record highs in summer 2005. Homeowners can't refinance if they owe more than a home is worth, a particular problem for those who bought around the peak.

One group that could benefit are homeowners who gained enough equity or paid down their loans, enabling them to refinance out of adjustable-rate mortgages due to reset to higher rates.

"There's a segment out there who are not in trouble yet," Picard said.

You can reach Staff Writer Michael Coit at 521-5470 or mike.coit@pressdemocrat.com.