Government-backed mortgage caps to decline

July 06, 2011 12:52PM

The federal government is planning its first pullback from the mortgage market since the downturn, lowering the maximum loan amount that Fannie Mae, Freddie Mac and federal agencies can back from its elevated level of $729,750, according to the Wall Street Journal. That maximum was set by Congress three years ago in an attempt to ensure that borrowers could continue to obtain loans in particularly expensive housing markets during the credit crunch. In October, that amount is set to decline by varying amounts depending on the market; in prime real estate locations, like New York, Los Angeles and Washington, D.C., the limit will decline to $625,500. Some lenders will stop accepting mortgage applications beyond the newly-lowered caps prior to Oct. 1 to make sure all loans are processed by the deadline. Nationwide, 250 counties will be affected by the new Fannie and Freddie limits, while the Federal Housing Administration will lower its limits in roughly 600 counties. Data from the Federal Housing Finance Agency shows that had the new caps been in place last year, Fannie and Freddie would have guaranteed 50,000 fewer loans, the vast majority of which would have been in California, Massachusetts, New York and New Jersey. Several industry analysts have expressed concern that the government’s move will lead to a further slump in home prices in those areas. [WSJ]