Policymakers are considering a reduction in the maximum loan amount Fannie Mae and Freddie Mac will allow. The intent, it seems, is to reduce the government’s role in the mortgage market. But why now? Why would the Federal Housing Finance Agency risk slowing the current housing recovery?
Industry experts estimate the conventional loan limits will be adjusted downward from $417,000 to $400,000. The maximum loan amount has been $417,000 since January of 2006, when it was adjusted up from $359,650 the previous year. Loan amounts above the conventional “conforming” limit are by definition Jumbo Loans. Jumbo loans require larger down payments and historically have also meant higher interest rates.
How does this affect the “average Joe”? Let’s assume a buyer has saved, or has approximately 10% available from the equity in a pending sale. ($40,000 to $50,000) Right now, with the existing $417,000 conventional loan limit, he/she could purchase a home with a $463,000 price tag. If the limit is ratcheted down to $400,000, that maximum price range drops to around $444,000. This while Nashville is seeing approximately 10% year over year appreciation in home values. This creates a “double whammy” in housing affordability.
The Mortgage Bankers Association and National Association of Realtors believe it is too soon to change loan limits, and are working with Congress on mortgage finance reforms that will maintain consumer access to affordable mortgage products.
Stay tuned. Or, if you feel strongly enough, write your congress person.
Ramblings from a Mortgage Professional 
That’s our Government. Still trying to fix a problem that doesn’t exist any more. Markets are just starting to recover. There was a pent up demand from 5 years of gridlock now that people are starting to move again the regulations keep piling on goofy regulations that make lending more cumbersome and restrictive. Who the hell was Dodd Frank anyway! They are killing the lending market. We (everybody regulators included) are still trying to interpret all the new disclosure crap, the 3 page HUD 1 with categories for tolerance, HPML guidelines that take away income and make you qualify at 7 year worst case rates. No body can qualify. And the purpose of the new guidelines were intended to protect borrowers from getting screwed. The governments idea is to pile on thousands of pages of new regulation that ensures everyone gets screwed. The new disclosure guidelines add over $700 to each transaction in order to protect you! That’s not what consider protection. Now the banking regulators are killing smaller banks. They are restricting lending with unfair regulation favoring the big banks that are “too big to fail” What a joke they mean too big to account for therefore unable to regulate! Please! I specialize in construction lending and secondary markets don’t allow for this. That means the smaller local banks have to do this type of lending out of their own portfolio. Now the regulation of this under HPML makes it impossible. Pray for a Republican in 3 years and Dodd Frank will be repealed! Letting credit flow again.
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