Today’s New York Times has an excellent piece on the effect of the pending drop in federal loan guarantees on September 30 from $729,750 to… well, to a lower level depending on the region. And that is affecting the sale of higher-priced homes, because lenders are reluctant to loan that much money without a government safety net.

As the paper explains:

The loan limits were $417,000 everywhere in the country before the economy swooned in 2008. The new limits will be determined by various formulas, including the median price in the county, but will not fall back to their pre-crisis levels. In many affected counties, the loan limit will fall about 15 percent, to $625,500.

The idea of a fully-privatized market may sound good on paper to some, but the reality is scaring homeowners who fear property values plummeting without the government behind the market.

Getting the government out of the mortgage business, however, is proving much more difficult than doling out new benefits. As regulators prepare to drop the level at which they will guarantee loans — here in Monterey County, the level will drop by a third to $483,000 — buyers and sellers are wondering why they should be punished simply for living in an expensive region.

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.

NAR president Ron Phipps weighed in as well, telling the Times, "Reducing the limits will put more downward pressure on prices. I just don’t think it makes a lot of sense."

Read the full story right here.

And read NAR’s "Principles for Restructuring the Secondary Mortgage Market" here.