The long-awaited raising of the conforming loan limit finally went into effect last month, igniting hopes that the move may stimulate the housing market in high-cost regions such as California and the Northeast.
Based on the stimulus package signed by President Bush in February, the Office of Federal Housing Enterprise Oversight (OFHEO) authorized Fannie Mae and Freddie Mac to raise the conforming loan limit to $729,750 from $417,000.
In a related move on the same day, HUD also raised the conforming loan limit on FHA loans to $729,750 from $362,790. While those are the maximum levels, the actual limit in a local market will be based on 125 percent of the area’s median home price.
Both rules changed on March 6. The HUD limits are effective to Dec. 31, 2008, and the OFHEO rules let Fannie and Freddie purchase mortgages that originated from July 1, 2007 to the end of this year.
Policy makers and industry officials are banking that the government will ultimately make the changes permanent by passing government-sponsored enterprise (GSE) reform and FHA modernization.
At press time, FHA modernization was in conference, having passed both the House and Senate. A House GSE bill passed last year, but the Senate has yet to take up GSE reform.
Dave Ledford, the NAHB’s staff vice president for housing policy, says while FHA modernization is possible this year, meaningful GSE reform is a “long shot.”
“While we’re very pleased the conforming loan limits were raised, we think it needs to be in place for longer than one year,” Ledford explains, especially since there’s no telling how long it will take Congress to pass legislation.
Ledford says the NAHB calculates that raising the loan limits will result in 108,000 additional new homes sold backed by the FHA and 95,000 new homes funded by Fannie and Freddie mortgages.
“The ability to get loans outside the jumbo market will be a big help,” said Ara Hovnanian, president and CEO of Hovnanian Enterprises, who talked about the government’s moves to stimulate housing at the company’s earnings conference last month.
“It’s not a huge part of our business, but it definitely will help,” he added.
Tim Eller, chairman and CEO of Centex Corp. also saw raising the conforming loan limits as a positive development.
“We know the limit increases will have a positive impact, but we don’t know how much at this time,” said Eller.
“At minimum, the new limits will help qualify more buyers for mortgages and reduce the number of foreclosures that will eventually reach the market,” he concluded.
Home buyers stand to save thousands of dollars on the life of a 30-year fixed mortgage. In early March, Wells Fargo listed a conforming 30-year fixed mortgage at 6.375 percent, while a 30-year fixed jumbo loan was 8 percent.
Learn more about markets featured in this article: Washington, DC.