High-end mortgage guarantees to drop

Published: May 11, 2011 at 11:04 AM

WASHINGTON, May 11 (UPI) -- Analysts say the U.S. government pulling back from mortgage support will likely jolt the high-end housing market, at least temporarily.

"We're looking at more price drops, more foreclosures. This snowball that's been rolling downhill is going to pick up some speed," mortgage loan broker Rick Del Pozzo said, The New York Times reported Wednesday.

Del Pozzo was referring to the U.S. government's plan to lower the limit on mortgages it will guarantee after three years of an increased limits meant to stabilize the housing market.

Congress raised the limit on mortgages it would guarantee $729,750 during the financial crisis from the standard $417,000.

The pre-crisis guarantee was meant to support home purchases at the medium and low end of the market. At this point, both Democrats and Republicans agree it is time to stop supporting high-end housing.

"There's always going to be a line, and for the person just over it, it's always going to be an arbitrary line," said Michael Barr, former assistant treasury secretary.

"But there is no entitlement to living in a home that costs $750,000," Barr said.

Nevertheless, pulling back support "will put more downward pressure on prices," said National Association of Realtors President Ron Phipps.

While he said he disagreed with the change, which is scheduled to take effect Sept. 30, Phipps also "more resistance" in Congress than the association found a year ago, when lawmakers added 12 months to the program.

Analysts expect the price of homes will fall when the limit is reduced, but the price of borrowing will rise.

"I don't want to sugarcoat this. The housing finance system of the future will be one in which borrowers pay more," Barr said.

The new limits will be determined by formulas that take into account regional pricing. The limit is likely to fall an average of 15 percent to around $625,500, the Times said, still higher than it was before the financial downturn.

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