01/22/2008 GAAS:028:08 FOR IMMEDIATE RELEASE Print Version |
Gov. Schwarzenegger Meets with Building Industry Leaders to Discuss Ways to Keep California’s Economy Growing
“I am meeting today with construction industry leaders to do everything we can to expedite release of billions of dollars in infrastructure bonds to help keep our economy growing and put people back to work.
“I am also today sending a letter to the Congressional leaders urging quick passage of legislation to raise limits for government loan programs. Raising these limits would do more than anything else to pump badly needed credit back into our housing market and revive our economy. It will also help reduce foreclosures and will allow more people to achieve the American Dream with solid, responsible loans.”
Today’s meeting was a follow up to an emergency cabinet meeting the Governor called last week, where he instructed agency directors and department heads to immediately recommend ways the Administration can work with the legislature to speed the release of $29 billion in unallocated funds from the 2006 infrastructure bonds.
Text of the letter Governor Schwarzenegger today sent to Congressional leaders:
January 22, 2008
The Honorable Harry Reid
The Honorable Nancy
Pelosi
Majority
Leader Speaker of the
House of Representatives
United
States
Senate U.S.
House of Representatives
Washington, DC 20515 Washington, DC 20515
The Honorable Mitch
McConnell The Honorable John A.
Boehner
Minority
Leader Minority
Leader
United
States
Senate U. S.
House of Representatives
Washington, DC 20510 Washington, DC 20515
Dear Senator Reid, Senator McConnell, Madam Speaker and Mr. Boehner,
As the housing market continues to decline in 2008, I ask that Congress takes action immediately and passes legislation increasing the conforming loan limits from $417,000 to $625,000 for Fannie Mae and Freddie Mac for high-cost housing markets like those in California. In a state where the average price of a home far exceeds that loan limit, Californians find themselves priced out of the very help these loans are intended to provide.
The current GSE loan limit disproportionately impacts California, which is home to four of the seven national markets most harmed by the cap. No single issue is impacting California’s economy more than fair access to housing capital. And since California is the nation’s largest economy, the current GSE limit is negatively affecting the entire country’s economic well-being.
Upheaval in the global credit markets has led to a dramatic reduction in liquidity throughout the mortgage industry. One exception is the segment of loans eligible for purchase by the GSEs. Fortunately, this market remains functional. However, because the GSE loan limit of $417,000 is uniform throughout the country and does not take into account regional price differences, GSE loans are unavailable to much of California and other higher-cost markets. While the current national loan limit of $417,000 is well above the national median sales price and exceeds the local median for the vast majority of nationwide housing markets, it is considerably below the local median in a few high-cost areas.
For example, a starter loan in Los Angeles usually puts a buyer outside the GSE loan limit and into the so-called “jumbo” loan market, a market that sprang largely from a permissive Federal Reserve policy that dropped interest rates dramatically and encouraged widespread jumbo lending. That market has now largely disappeared and, where it remains, lenders are requiring expensive and onerous terms from borrowers that in some cases are fully one percentage point higher than GSE terms.
According to one source, more than 50 percent of California homeowners and homebuyers now lack access to GSE financing. When combined with the withdrawal of the jumbo loan market, it’s no surprise that current home sales activity in California is half the pace seen in 2006.
Moderate- and low-income families in high-cost housing markets are hit hardest because the current GSE loan limit restricts their access to lower cost, lower down payment, fixed-rate loans. Lifting the GSE loan limit in these areas would help put affordable home purchase and refinancing options within their reach. Likewise, these adjustments to conforming loan limits for high-cost areas would give homebuyers access to safer mortgages, especially important to first-time homebuyers or owners with high-cost subprime mortgages in need of refinancing.
Increasing the GSE loan limit could also benefit veterans, teachers, firefighters and police officers by expanding access to Federal Housing Administration (FHA) and Veterans Affairs (VA) mortgages, as both agencies’ loan limits are tied to the $417,000 limit.
There is precedent for raising the loan limit in high-cost areas. Loan limits for Alaska, Hawaii, Guam and the U.S. Virgin Islands are already 50 percent higher than the rest of the nation. Treating homeowners living in high-cost parts of California and other areas of the country differently simply makes no sense.
No single issue is affecting California’s economy more than this one of fair access to housing capital. Just last week our unemployment rate rose by one-half of one percent, an increase attributed by most economists to weakening housing, and just today it was announced that default notices more than doubled and foreclosures more than quadrupled over the past year. Our consumers will continue to reduce spending so long as they cannot get the same financing options available to the rest of the country.
An economic slowdown in California has immediate and significant impacts on the rest of the country. Nothing will more beneficially improve the United States economy than immediately raising these limits. I urge you to take action on this critical issue now.
Sincerely,
Arnold Schwarzenegger
cc: The Honorable Christopher J.
Dodd
The Honorable Richard
Shelby
The Honorable Barney
Frank
The Honorable Spencer
Bachus
