Utah County homeowners may have inadvertently been shortchanged in this year's economic-stimulus package, due to standards for home loans that were revised earlier this spring.
In March, the federal government raised the limits for loans that can be purchased by mortgage companies Fannie Mae and Freddie Mac in more than 220 cities and counties nationwide. The changes were made as a result of the economic-stimulus package signed by President Bush, temporarily raising loan limits to a new maximum of $729,750 for the continental United States.
The stimulus bill increased the cap on mortgages that the government-sponsored mortgage companies Fannie Mae and Freddie Mac can buy or guarantee from the current level of $417,000 for many areas.
The revised limits are due to expire at the end of the year and will be re-evaluated to determine if the higher limits should be extended or if any changes should be made in certain counties, said George Antoine, regional economist for the U.S. Department of Housing and Urban Development.
In Utah, several counties received the higher loan limits, including Salt Lake, Summit and Tooele counties, where the loan maximum is the national top limit of $729,750. Wasatch County had an increased loan maximum of $431,250.
However, the loan limit in Utah County was set at $417,000, far below neighboring Salt Lake County, despite similar single-family housing prices.
When the new loan limits were announced in March, Matthew Prestwich, president of Homeline Mortgage Inc. in Salt Lake City, commented that "the biggest impact will be those people with loans over $417,000." He said they would be able to qualify for regular conforming loans, which have much better interest rates than non-conforming "jumbo" loans that had higher rates.
David Luna, head of the Utah Association of Mortgage Brokers, added that the higher loan limits would eventually be an ideal solution for many homeowners who needed help.
"For those that have gotten in trouble, there is a light at the end of the tunnel," Luna said. "If they have overextended themselves, including those in bankruptcy, the higher loan limits are going to help."
Prestwich said the higher limits would offer better refinancing options for those with larger mortgages.
That may have been true for homeowners in Salt Lake, Summit and Tooele counties, but homeowners in Utah County don't have as much flexibility because of the lower limits there.
Economists say it is too soon to determine what impact the lower limits may have on the current Utah County housing market.
In previous years, the loan limits tied the four Wasatch Front counties of Weber, Davis, Salt Lake and Utah together, said Dwight Peterson, Salt Lake City field office director for the Department of Housing and Urban Development.
However, this time, the government changed its criteria and chose to separate Utah County from the Salt Lake metro statistical area, Peterson said.
Antoine attributed the change to revised grouping criteria, which he said were based on commuting patterns. The change put Utah County outside of the Salt Lake metro statistical area, resulting in lower loan limits.
The number of Utah homeowners who received a foreclosure filing in June jumped nearly 141 percent, compared with the same month last year, according to a report this month from RealtyTrac.
The most dramatic increase came from Utah County, where the Provo/Orem area ranked 37th among metro areas nationwide in the rate of foreclosures. The Provo/Orem area had an 810 percent increase in foreclosure filings from June 2007 to June 2008. Overall, Utah ranked 10th among the states in the rate of foreclosure filings.
University of Utah economist James Wood and Antoine believe that the high rate of foreclosures is not connected to the loan-limit changes, since those limits were revised in March, and foreclosures can take many more months to process.
Wood said the highest percentage of problem loans likely to become delinquent were people in the subprime category.
"The troublesome ones really are the subprimes that are resetting, because you have people who were already in fragile economic condition in their personal finances," Wood said. He estimated that there are about 56,000 subprime loans in Utah.
He said a big chunk of the Utah County foreclosures were in the northern part of the county.
"You had young families getting into large starter homes and getting in over their heads," he said. "Their economic balance sheets were considerably weaker. They were just really vulnerable."
Mortgage brokers also point to the lax lending standards prevalent during the housing market run-up as a cause of the soaring foreclosure numbers.
"We had gotten to the point where we were giving 'pulse loans,"' said Dave Barton, co-owner of Rocky Mountain Mortgage in Provo. "If you had a pulse, you got a loan."
Now that lending standards have become stricter, some people who are trying to refinance are finding it tougher to so do."Has the industry shrunk and made it more difficult to refinance? Yes. Have home prices leveled off and in some areas gone down? Yes," Barton said. "But it's the combination of the two that makes it more difficult for people to go in and refinance."