The government is preparing to lower the amount of mortgage loan that it will guarantee, after raising the limits in the wake of the financial crisis.  This seems like absolutely the right thing to do (though I would say that, since I don't think the government should have gotten into the securitization business in the first place.)  But it's going to make things even tougher in expensive markets:

Sellers worry that the pool of potential buyers will shrink. "I'm glad to see they're trying to rein in Fannie Mae, but I think I'm being disproportionately penalized," said Rayn Random, who is trying to sell her house in the hills for $849,000 so she can move to Florida.

Buyers might face less competition in the fall but are likely to see more demands from lenders, including higher credit scores and larger down payments. Steve McNally, a hotel manager from Vancouver, said he had only about 20 percent to put down on a new home in Monterey County.

If a bigger deposit were required, Mr. McNally said, "I'd wait and rent."

Even those who bought ahead of the changes, scheduled to take effect Sept. 30, worry about the effect on values. Greg Peterson recently purchased a house in Monterey for $700,000. "That doesn't get you a palace," said Mr. Peterson, a flight attendant.

He qualified for government insurance, which meant he needed only a small down payment. If that option is not available in the future, he said, "home prices all around me will plummet."

I hope that Mr. Peterson has a partner, because if not, that would suggest that the mortgage giants are currently perpetuating some of the worst excesses of the bubble.  


Of course if we stop pumping money into the system, there will be even more temporary pain.  But trying to slow the pain down hasn't worked well so far.

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