Mortgage bills: One gives, one takes

By Adam Pincus | February 27, 2009 03:46PM

New York City mortgage lenders say residential borrowers are weighing the pros and cons of two pieces of federal legislation — one that was passed into law and lowers lending rates for high-end borrowers, and another that is pending and would raise taxes.

The legislation that cuts borrowers’ costs was signed into law as part of the $787 billion federal stimulus package, but in general has not taken effect in New York City, mortgage lenders said. It bumps the conforming loan limit back up to $729,750 from $650,000, thereby saving borrowers several thousand dollars per year in interest payments.

But a separate proposal could reduce those savings for some homeowners. Included in President Barack Obama’s budget proposal is a provision to reduce the mortgage interest deduction for those earning about $250,000 and up. The rate they can deduct would drop from 33 percent or 35 percent, depending on your tax bracket.

Rolan Shnayder, director of new development lending at Home Owners Mortgage Express, said although it is a small range of borrowers that are impacted by the higher loan limit, it could save them $7,000 annually, depending on interest rates.

“More people would qualify for purchases and refinancing would be more affordable,” he said.

Melissa Cohn, president of Manhattan Mortgage, said borrowers were delaying action while they waited for more banks to raise their loan limit to the higher level. But she did not think the tax increase would lead to fewer buyers.

“I don’t think it will impact buying or not buying, because you still get some tax deduction which is better than renting,” she said, adding: “The most important thing the feds will have to do is bring mortgage rates down.”

Although the stimulus legislation is already law, it takes several weeks for the large banks to begin offering loans with the higher limit, Cohn said. Only one major bank, Fifth Third Bank, is offering the loan so far, but she expected others to follow suit by the end of March.