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.