Lower Mortgage Caps Could Impact Central Mass.
A recent change in federal mortgage lending limits could affect Worcester County more than other areas of the United States, according to a study released this month.
Homebuyers looking for a single-family home in the county have $100,000 less to work with starting this month if they pursue a Federal Housing Administration mortgage. It’s a 26 percent drop in limits.
FHA loans have become more widely used in the wake of the 2008 economic crash that caused some private lenders to exit the market, according to several area real estate professionals and federal data.
Nationwide, the FHA’s share of loans increased from 7 percent in 2007 to 37 percent in 2009 and 36 percent in 2010, according to data from the Federal Financial Institutions Examination Council.
The federal government raised the FHA limits in 2008 in an effort to stabilize housing prices and ensure the availability of credit to keep the housing market afloat. But the limits are now back to normal, which the federal government has said is part of its strategy to reduce its role in the mortgage market.
The Department of Housing and Urban Development said the change would have voided approximately 3 percent of all FHA loans in 2010 and 6 percent of dollar volume.
It’s a small piece of the market, to be sure. But a recent academic study said the changes will affect certain areas more than others and leave Central Massachusetts homebuyers in a higher price range resorting to loans with higher down payments.
In Worcester County, the FHA mortgage limit for single-family homes dropped from $385,000 to $285,000 as of Oct. 1.
Among other areas of the country, that’s a relatively large drop, said Mark Willis, a research fellow at the Furman Center For Real Estate and Urban Policy at New York University, which just released a study on the potential impacts of the FHA changes.
Willis said that for Worcester, there is now a larger gap between the $285,000 FHA mortgage limit and the $417,000 limit for government-sponsored enterprise (GSE) guarantees backed by such companies as Fannie Mae and Freddie Mac. Compared to FHA loans, which have 3.5-percent down payments, down payments on GSE loans can be as high as 20 percent, Willis said. The changes could affect the market for homes that fall within the FHA and GSE price range. “It will be hard for people who previously could qualify for an FHA mortgage to buy those homes,” he said.
At first glance, the limits appear to easily cover median sales prices over the past several years.
The median sale prices for a single-family and multi-family home in Worcester County this year are $212,950 and $138,000, respectively, according to data from the Massachusetts Association of Realtors. Those prices fall well below the recently lowered FHA limits of $285,000 and $441,000.
More Originations Here
But the study Willis co-authored found that Worcester County has a higher share of mortgage originations that exceed the new FHA limits than do most other areas of the United States, which could make the area vulnerable in the coming months.
The study found that 217 mortgage originations in Worcester County in 2009, or 3.4 percent of total originations, exceeded the new FHA lending limits. All 217 were FHA loans, Furman said. Worcester’s 3.4 percent share ranks it 10th in the country.
Kevin Maher, managing partner at Emerson Realtors in Auburn, said FHA loans have become more widely used in Central Massachusetts since the recession. He estimated about one in five sales his 32 agents facilitate end up with an FHA loan.
Maher doesn’t think the change will have much impact on his market, but he’s not pleased all the same. “It’s just one more negative thing you’re going to hear about,” Maher said. “We’re dealing with enough structural issues in the real estate economy today.”
Perception is important, and Maher said consumers will see declining FHA limits as a sign the market is going down rather than up, which could remove any sense of urgency they have to buy.
Rich McNally, president of Worcester-based Security First Mortgage Funding, said he wasn’t too concerned about the reduction and said FHA loans are still a good avenue for homebuyers.
“I don’t think the limits are going to affect too many people in the price ranges they’re looking for,” McNally said. “I don’t think it’s going to kill the market.”
While any impact may be seen in the coming months, he said it will be important to watch how the private sector handles what’s sure to be a large increase in demand for mortgages.
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