Tuesday, July 05, 2011

Changes to Conforming Loan Limit

by Bill McBride on 7/05/2011 11:14:00 PM

Back in April, economist Tom Lawler previewed the coming changes to the GSE conforming loan limits on October 1st: FHFA: Where the Conforming Loan Limit Might Fall on October 1

The FHFA has now released the new limits.

Here is a Spreadsheet with the current loan limits and the new loan limits (sorted by largest change in limit).

The largest changes were for Monterey, CA (decrease of $246,750), Monroe, FL (-$200,750) and Puerto Rico (-$189,250). Maui, HI will see a decrease of $163,250 and San Diego, CA a decrease of $151,250.

From Nick Timiraos and Alan Zibel at the WSJ: Sellers Brace for New Mortgage Caps

As an emergency measure three years ago, Congress raised to as high as $729,750 the maximum loan amount that Fannie Mae, Freddie Mac and federal agencies could guarantee. ... Now those limits are set to decline modestly in hundreds of counties across the U.S. as the government attempts to reduce its outsized footprint in the mortgage market and create room for private investors to compete.

Had the lower limits been in place last year, Fannie and Freddie would have backed 50,000 fewer loans, according to the Federal Housing Finance Agency. The bulk of the affected loans —about 60%— are in California, with another 20% in Massachusetts, New York and New Jersey.
This will not have a significant impact on the housing market. Remember there are about 5 million home sales per year - so even if all these homes fell through, the impact would be very small.

As Tom Lawler wrote in April:
Letting the conforming loan limits go down on October 1st is not a big deal from the standpoint of the housing market, and the new limits would still leave the VAST bulk of home sales transactions eligible for GSE acquisition. However, it is a “big deal” in terms of it being the first (though very small) step to reduce the government’s/GSE’s “footprint” in the US mortgage market.

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