All this could have a significant impact on the housing recovery.

(Read More: Reverse Mortgages Backfiring on Seniors)

“If the investors gets sidelined—along with first-time buyers who are already sidelined—this housing market falls apart quickly,” says Mark Hanson, a California-based housing and mortgage analyst. Hanson points to still-high levels of negative equity, which has kept many homeowners stuck in place.

Connecticut-based Carrington Mortgage Holdings, a hedge fund that had been buying distressed homes, recently stopped.

“We think the market is a little bit too frothy,” said Carrington’s Rick Sharga in an interview last month. Home prices are now up 12 percent from a year ago nationally, according to CoreLogic, but have risen far more greatly in formerly distressed markets where investors originally focused their purchases.

“The general consensus right now is that the bargains are drying up when it comes to buying foreclosed properties,” adds Sharga.

(Read More: Rising Rates Turn Investors From REITs)

That is largely due to a lack of distressed homes for sale. The number of foreclosure sales in the first quarter of this year fell 22 percent from a year ago, according to RealtyTrac, a real estate website. The number of short sales, when the home is sold for less than the value of the mortgage, also fell, as rising prices provided less incentive for banks to agree to such deals. Some claim banks are actually holding onto repossessed homes, waiting for prices to rise higher.

Investors accounted for 19 percent of home sales in April, according to the National Association of Realtors, down from 24 percent in all of 2012. Investors include individual buyers as well as large hedge funds, but the hedge funds have been getting much of the attention, credited with juicing prices in the hardest hit housing markets like Phoenix and Las Vegas. Their so-called REO-to-Rent strategy (Real Estate Owned-to-Rent) has evolved into a new asset class, with two of the companies that engage in the practice going public this year as real estate investment trusts (REITs).

Article source: http://www.cnbc.com/id/100799067

Fannie Mae and Freddie Mac, the private mortgage lending entities under government conservatorship, are set to reduce their maximum conforming loan limit from the current $729,750 to $625,500 on October 1st. Bay Area mortgage broker Eric Leithliter of California Mortgage Advisors says this may adversely affect the Bay Area real estate market, making it harder for homebuyers to get loans and lowering home values. He recommends that people who have been waiting to buy act soon, before the loan ceiling is lowered.

When the financial crisis hit in 2008, the government-sponsored entities (GSEs) Fannie Mae and Freddie Mac tried to combat the tightening home lending market by temporarily raising the limit on conforming single family home loans to $729,750 [for the more expensive counties; some counties have a lower limit], an amount that has been renewed every year since. But in the current political climate, with a focus on reducing the national debt and encouraging private sector action, the federal government seems unlikely to renew the higher conforming loan limit. If congress allows the loan limits to drop, the highest conforming loan limits will go down to $625,500.

“If you have been sitting on the fence, thinking that rates are going to continue to go down, they may want to consider making a move soon. Waiting until later may limit your ability to get a low rate on a single mortgage loan, making it more expensive and time-consuming to buy,” says Eric Leithliter, a Bay Area financial advisor based in Walnut Creek.

Leithliter says that if the conforming loan limit is allowed to drop, it could a negative impact on the local housing market. Nonconforming loans carry a higher interest rate (typically 0.50% to 1.5% above rates for conforming loans), and private banks may be reticent to make large loans because their capital requirements are higher than GSEs like Fannie and Freddy. The likely effect for borrowers is to make credit more expensive and harder to get.

It would also be likely to cause home values to drop even further, which is bad news for sellers. According to the Oakland Tribune, over a quarter of all Bay Area homes are already underwater; if demand is decreased even further, it will be hard for the real estate market to make a recovery.

Leithliter also warns that many banks that use Fannie and Freddy to back mortgages may implement the $625,500 limit prior to the October 1st deadline, in order to process the last of their higher jumbo loans in time to qualify for the current financing rates.

“The signs are pointing to a tightening of the credit market in the near future,” says Leithliter. “Buyers who continue to wait around may come to wish they had acted sooner.”

For more information about the upcoming lowering of conforming loan limit and its impact on the market, or any of Eric Leithliter’s products or services, call him at 415-692-7415 or view him on the web at www.calmtg-ba.com. Connect with Eric Leithliter on Facebook at www.facebook.com/pages/Bay-Area-Mortgage-Guide/160527848509 and follow him on Twitter at http://twitter.com/mortgagecounsel.

About Eric J. Leithliter, California Mortgage Advisors, Inc.

Eric J. Leithliter is a Senior Residential Loan Officer at California Mortgage Advisors, Inc. He is focused on providing his clients education on the current financial market conditions and how this effects their mortgage options today and in the future. He began as a loan processor and underwriter and became an expert in all facets of the lending industry. As a Loan Officer, this background helps Liethliter construct complicated and difficult loans into successful loan closings. He continues to attend underwriting seminars that keep him abreast of all the changing requirements that lenders are implementing in today’s complex lending environment. Leithliter specializes in residential financing, private money financing, commercial financing, short sale and foreclosure transactions, FHA loans, credit analysis and repair, and jumbo mortgage loans in the Bay Area.

Eric J. Leithliter serves the San Francisco Bay Area communities of Walnut Creek, Orinda, Lafayette, Moraga, Alamo, Danville, as well as Marin County, San Francisco, Silicon Valley, and Sonoma County.

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For the original version on PRWeb visit: www.prweb.com/releases/prwebJumbo-Mortgage-Loan/Bay-Area/prweb8560737.htm

Article source: http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2011/06/10/prweb8560737.DTL