11/29/2017 | Casey Fleming | The Federal Housing Finance Agency – the FHFA – disclosed the new conforming loan limits for 2018 yesterday, and they went up further than most analysts expected! It’s great news, as it opens the door to homeownership to more people.
Fannie Mae and Freddie Mac (the agencies) were created to purchase mortgage loans from lenders in order to inject funds into the housing market to support home ownership throughout the country. Then they borrow money from institutional investors (insurance companies, pension funds, etc.) by selling bonds through exchanges such as the New York Stock Exchange. The bonds are secured by the value of and income on the mortgages that they have “pooled.”
The federal government (meaning taxpayers – you and I) have always in one way or another guaranteed that the money would be paid back to the institutional investors, whether the mortgage pool performs or not. This guarantee incentivizes investors to accept a lower yield when bidding on these bonds, and that lowers the mortgage interest rate for all borrowers.
Because of the taxpayer-backed guarantee the agencies have to be prudent – the loans have to be made in a responsible manner. They publish guidelines for the types of loans that they will purchase. Loans that are written to these guidelines are called conforming loans, because they conform to Fannie / Freddie guidelines.
The conforming loan limit is the maximum loan amount that the agencies will buy. In the past, Each year they published a new conforming loan limit which reflected increases in housing prices across the nation.
Modern Day Conforming Loan Limit
After the financial crisis, home prices didn’t rise – in fact, they fell. Rather than lower the conforming loan limit, which would have significantly diminished the availability of mortgages, they kept the conforming loan limit at the same level as 2007 – $417,000.
In 2009 they went one better, and created a second category of conforming loans written to guidelines for the new high balance conforming loan limit. This category recognized that in certain areas of the country with high-cost housing the conforming loan limit was too low to finance most of the homes in the area. Therefore, in counties identified as high-cost areas the high-balance conforming loan limit would be set at 125% of the median home price in the county, or a certain dollar limit, whichever was lower.
From 2008 through 2015 the conforming loan limits were kept at the same level, since home values had not yet recovered from the financial crisis. The conforming loan limit was $417,000, and the high-balance limit was a maximum of $625,500.
Beginning in 2016 the limits were raised for the first time in 8 years, to $424,100 and $636,150 respectively.
So today there are two categories of conforming loans, and two conforming loan limits – one a nationwide figure, and then a second one that depends on your county.
Yesterday the FHFA (the parent agency of Fannie Mae and Freddie Mac) announced that the conforming loan limits for 2018 would be $453,100 and $679,650, a jump from the 2017 limits that was much higher than expected. This reflects the very high home price appreciation we have experienced nationwide over the last year.
What this means to you is that the best possible pricing in the market is now available for loans up to $453,100, and very close to the best rates will be available up to whatever the high-balance conforming loan limit is in your county. To find out the limit for your particular county, go here, or just call me – I’m glad to help.
This article represents the opinions of Casey Fleming, and not necessarily those of C2 Financial Corp. This analysis was prepared with the best information available at the time it was written. Neither Casey Fleming, nor C2 Financial Corp., have any magical insider information about bond markets, real estate markets or mortgage markets that would make economic projections any more reliable than any other source. No warranty is made that the outcome will reflect the projections in this article, and neither Casey Fleming nor C2 Financial Corp. are responsible for decisions that you make regarding your own choices about your real estate or mortgage or those of your clients.
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