By Keith Loria
After much debate and worry in the industry, the Federal Housing Finance Agency decided that the 2014 maximum conforming loan limits for mortgages acquired by the government-sponsored enterprises Fannie Mae and Freddie Mac, will remain at $417,000 for one-unit properties in most areas of the country.
In its simplest explanation, the Housing and Economic Recovery Act (HERA) of 2008 establishes the maximum conforming loan limit that Fannie Mae and Freddie Mac are permitted to set for mortgage acquisitions and requires annual adjustments to these limits to reflect changes in the national average home price.
Policymakers were contemplating a reduction in the maximum size of home loans that Fannie Mae and Freddie Mac were allowed to acquire, trying to lessen the government’s footprint in the mortgage market. Many are glad that didn’t occur.
Steve Brown, president of the National Association of REALTORS®, was among those championing the decision, stating that NAR opposed lowering the ceiling on loans due to it increasing costs for consumers and reducing access to conventional mortgages.
“In September, when reports surfaced that FHFA acting director Edward DeMarco was considering using conservator authority to lower loan limits, NAR cautioned that such an experiment would jeopardize homeownership for many creditworthy buyers, especially first-time homebuyers who are often less likely to meet the 20 percent minimum down payment requirement,” Brown says. “There is already enough turbulence in the regulatory environment for mortgage lending. Lowering loan limits at this time would create even more confusion and uncertainty, and we would run the risk of reversing the progress that’s been made in the economic recovery.”
HERA provisions require that FHFA set loan limits as a function of local-area median home values. Where 115 percent of the local median home value exceeds the baseline loan limit ($417,000 in most of the U.S.), the local loan limit is set at 115 percent of the median home value. In Washington, D.C.—and all U.S. states except Alaska and Hawaii—the highest possible local area loan limit for a one-unit property is $625,500.
In determining the 2014 HERA loan limits in high-cost areas, the FHFA did not permit declines relative to prior HERA limits. Therefore, while it did not explicitly prohibit declines in high-cost area loan limits, that approach is consistent with the statutory procedure for responding to changes in prices on a national basis.
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