A California Congressman has introduced legislation to increase the conforming loan limit in New York and other states with significantly higher housing costs.

Under Democrat Brad Sherman's measure, which has been endorsed by 20 cosponsors including Minority Leader Nancy Pelosi, D-Calif., the ceiling on loans that can be purchased by Fannie Mae and Freddie Mac would be 50 percent higher in any state which has at least one metropolitan statistical area where the average price of houses exceeds the national limit.

Because the two giant financial institutions are government sponsored enterprises, the rates on loans they are permitted to purchase range from 0.25 to 0.75 percentage points less than "jumbo" loans which exceed the maximum.

"Home buyers in high cost housing regions of the country do not have equal access to the benefits offered by the existence of a federally chartered secondary mortgage market," said Rep. Sherman, who sits on the House Financial Services Committee.

The four-term lawmaker from the Los Angeles area offered his bill late in the session in hopes that it might be attached to other legislation. But he also plans to push for passage next year.

The conforming loan limit, which currently is $322,700, will rise to $333,700 next year.

But in Alaska and Hawaii, which have qualified for a special 50 percent dispensation in recognition of their higher housing costs since the early 1970s, the maximum will be $500,550 in 2004.

Under the fourth-term lawmaker's bill, eight more states would be added to the list: California, New York, New Jersey, Pennsylvania, Connecticut, Massachusetts, New Hampshire and Maine.

The difference in principle and interest costs for a $500,550, 30-year loan at a conforming loan rate of 6.5 percent and a jumbo loan rate at 7 percent is $166 a month.

"This bill will help home buyers in these high cost states at no cost to the taxpayer," Rep. Sherman said.

Fannie Mae and Freddie Mac raise their ceilings annually based on a national survey of housing prices by the Federal Housing Finance Board. But the 3.4 percent increase that will go into effect Jan. 1 is one of the smallest in recent years.

Although Freddie Mac estimates that 150,000 buyers will save as much as $38,700 over the life of a 30-year loan as a result of the higher limit, and Fannie Mae puts the full-term savings at $21,900 for just 90,000 borrowers, the Mortgage Bankers Association says only about 25,000 home buyers will see their borrowing costs go down.

Moreover, the MBA says more than half of those will be in just three states -- California, New York and Florida.

In California, Ann Pettijohn, president of the state Realtors' association, lamented the small increase in next year's loan limit, saying only 4,100 residents of the Golden State will benefit.

"Conforming loan limits need to more accurately reflect the cost of housing in California," said Pettijohn, whose group favors the Sherman bill.

At $381,200, the median price of a house in California is 14 percent higher than the new maximum, according to the California Association of Realtors. The state alone has 14 counties where the median is above the limit, CAR says.

Pennsylvania, Maine and New Hampshire are not normally considered high-cost areas. But because areas within their borders are part of MSAs in neighboring states with higher than average prices, they would qualify for the exemption under the Rep. Sherman's proposed legislation.

States qualify under the "Improving Homeownership in High Cost States Act" when an MSA exceeds the conforming limit in any one of the previous four quarters ending Sept. 30 on each year.

Once a state qualifies, it would remain on the high-cost list for the following two years.

Published: December 10, 2003

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When Lew Sichelman first started writing about housing in 1969, he was the youngest real estate writer in the country. Now, 37 years later, he's one of the oldest -- and most decorated. He has been rated the top housing columnist in the country by the National Association of Realtors as well as by his peers in the National Association of Real Estate Editors. Indeed, NAREE has recognized his work on numerous occasions. One year - due to his advancing age, he can't recall which one - he earned top honors in the annual NAREE Journalism Contest in three out of the four major writing categories. It was the first time one writer has won so many NAREE awards in a single year. Known for his ability to make even the most difficult topics understandable, Sichelman also has been honored by the National Association of Home Builders and the Mortgage Bankers Association. He began providing in-depth coverage of and consumer-oriented information about housing and housing finance at the Washington Daily News, where he was real estate editor. He held that same position for nine more years at the Washington Star, which purchased the News in 1972. The Star, a so-called "writer's newspaper" which also had the misfortune of being an evening paper, was put out of its misery in 1981, and Sichelman, who had begun self-syndicating his column in 1978, decided to become a full-time columnist. Today, his column, "The Housing Scene," is distributed by United Media to newspapers throughout the country. He also is on the staff of National Mortgage News, an independent newspaper which is considered the bible of the mortgage business. And he writes for numerous other publications, including MarketWatch.com, where he answers readers questions once a week, Sports Illustrated (don't ask), RealtyTimes.com, BigBuilder and others. Sichelman is married, the father of five and grandfather of eleven.