Conforming Mortgage Limit Reductions Postponed

The Mortgage Corner

Federal officials will delay any reduction in the maximum size of home-mortgage loans eligible for backing by Fannie Mae and Freddie Mac until next spring at the earliest, said FHFA Administrator Ed DeMarco in a Wall Street Journal article--DeMarco: No Mortgage Limit Declines Before Spring 2014. It is reputably from heavy resistance from the real-estate industry and many lawmakers in Congress.

This is in the face of the recent government shutdown and debt ceiling debate that has slowed economic growth this year, and even next year, if a budget agreement isn’t reached by January 2014.

Couple this with a recent slowdown in real estate sales, including for new homes.  There appears to be little doubt that rising mortgage rates, combined with higher home prices, resulted in a material slowdown in net new-home orders last quarter, says Calculated Risk. Mortgage rates, of course, have fallen considerably since early September, though they remain well above levels since during the first five months of the year.

Currently, Fannie and Freddie can guarantee mortgages that have balances as high as $417,000 in most of the country and up to $625,500 in expensive housing markets, including parts of California and New York. Loans within the limits are called “conforming” or “High-Balance conforming loans.

Potential loan-limit changes will be announced six months ahead of their implementation date, said Demarco, and such changes wouldn’t be announced until November at the earliest. “Anything we do would have a long lead time and would be gradual and measured,” said Mr. DeMarco.

When the agency does move ahead with loan limit declines, the declines will apply to both the national limit and the high-cost limits, which were enacted on an emergency and temporary basis by Congress in 2008.

It will be politically difficult to lower these limits, and the limits probably wouldn't be adjusted down very much.  The conforming loan limit was $252,700 in 2000. Using the FHFA Purchase Only index, the national conforming loan limit might be lowered to around $360,000.

Using the CoreLogic or Case-Shiller Comp 20 indexes, the conforming loan limit might be lowered to $380,000 to $395,000. Not a large downward adjustment for the national limit.

Harlan Green © 2013

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