Fannie Mae and Freddie Mac will increase loan limits in the coming weeks, making it easier for buyers of more expensive homes to get a mortgage.
The Wall Street Journal reports that the conforming loan limit is expected to rise to a baseline of $650,000 and to nearly $1 million in high-cost markets. The current conforming loan limits for single-family homes are $548,250 and $822,375, respectively.
The exact loan limits are expected to be announced on Nov. 30 before going into effect at the start of 2022.
The increase of loan limits should make it easier and cheaper for buyers to secure a mortgage for amounts just above the current limit of what Fannie and Freddie will buy. Lenders are very willing to make loans that they know can be sold to the government-sponsored entities, and tend to charge lower interest rates and not demand high down payments for them.
Fannie and Freddie loan limits are determined by a formula, and the housing market’s rise has pushed the numbers up. NAR reports the median price of a single-family home last quarter was $363,700. The loan limit increases are designed to keep the entities in sync with housing prices, which have climbed because of low mortgage-interest rates, low supply and high demand.
The increase in loan limits will increase Freddie Mac and Fannie Mae’s footprint, escalating concerns about how involved the federal government should be in the housing market.
In 2019, Freddie and Fannie bought about 42 percent of new mortgages, according to the Urban Institute, but nearly 60 percent during the pandemic, the Journal reported.
The limits exist because buyers who can afford large homes typically don’t need a government-backed mortgage. Fannie and Freddie guarantee almost half of the $11 trillion mortgage market, which helps first-time buyers and moderate-income borrowers, the Journal reports.
The government-sponsored entities have already loosened the screws during the pandemic. Fannie and Freddie have been taking on loans to borrowers with lower credit scores and Fannie has started considering rent payments when evaluating the reliability of mortgage applicants.
The increase in conforming loan limits should help borrowers, but other obstacles are approaching. The Federal Reserve has signaled plans to cut back on its billion-dollar bond buying program, which could increase mortgage rates. Additionally, standards for jumbo loans that exceed the conforming loan limit are tightening.
[WSJ] — Holden Walter-Warner