Realtors fight tightening loan restrictions

Local Realtors are lobbying lawmakers to battle what might be the next bumps in the road to recovery for the struggling real estate market — proposed changes in federal law that would reduce the size of government-backed loans and raise minimum down payments for borrowers.

Leaders of the Realtor trade associations in Burbank and Glendale visited Washington in mid-May, asking Reps. Adam Schiff (D-Burbank), Brad Sherman (D- Sherman Oaks) and others to block the changes.

They say a proposed down payment requirement of as high as 20% would force many qualified buyers to the sidelines, and reducing federal loan guarantees from $729,750 to $417,000 would undermine values in an area where most homes sell for far more than that.

The loan guarantee proposal comes from Sen. John McCain (R-Ariz.), who is seeking to reduce the influence of government-backed mortgage guarantors Fannie Mae and Freddie Mac and prevent another meltdown resembling the 2006-07 crisis, when loose lending practices led to unqualified buyers obtaining homes.

As the economy soured, many lost their homes to foreclosure or simply walked away from their properties, sending the market into an extended slide. The losses at Freddie and Fannie now exceed $150 billion.

Separately, regulators are considering an increase in the size of down payments borrowers must make.

Armik Avedisian, president of the Glendale Assn. of Realtors, visited with Schiff and Rep. Xavier Becerra (D- Los Angeles). Avedisian said the changes “will drive down the market, take out many buyers — even if they are qualified — and not many sellers will be out there.”

The problems also would hit construction and remodeling firms, Avedisian said.

“This is not going to help the economy in any way,” he said.

Other local agents who made the Washington trip include Shannon Cistulli, president-elect of the Glendale Assn. of Realtors; Burbank Assn. of Realtors President Alexandra Kelly and Chief Executive Brian Paul.

Eric Benz, a member of the Burbank association’s legislative committee, said banks have already tightened — “and maybe over-tightened” — lending rules, so further protections to screen out unqualified borrowers are unnecessary.

Sherman and Schiff were receptive to the industry’s message.

In contrast to McCain’s bill, Sherman has co-sponsored legislation that would increase loan limits in order to provide a positive jolt to the market for homes at $700,000 or above.

Schiff said he backs narrowly-tailored measures to reduce the risk of bad loans, such as requiring borrowers with poor credit histories to make larger down payments. But he said a “one-size-fits-all effort” of requiring high down payments and reducing the loan guarantees won’t work.

“These proposals would further cripple an already deeply distressed housing market in California,” he said.