The federal government announced today that the conforming loan limit for single-family homes will stay at $417,000 through 2009 for most areas of the United States, with higher limits for some cities and counties.
The conforming loan limit sets the maximum size of loans that can be purchased by Fannie Mae and Freddie Mac. The limits are set by the Federal Housing Finance Agency (FHFA), which was created this summer, when the Housing and Economic Recovery Act of 2008 was signed into law.
Loan limits for larger, multifamily properties in most areas will stay at 2008 limits as well. Two-unit properties will have a limit of $533,850, while three-unit properties will continue to have a limit of $645,300. Properties with four-units will keep their loan limit of $801,950 for most of the continental United States. Some areas will have higher loan limits for different types of properties.
The loan limits were proposed to be raised as part of the Housing Act, to allow Fannie and Freddie to buy and guarantee larger loans, to enable buying and selling of more expensive homes.
But the 2009 loan limits were left unchanged for most parts of the country because of home price declines, FHFA said in a statement. Under the Housing Act, conforming loan limits cannot decline from year to year. FHFA uses median house price estimates produced by the Federal Housing Administration (FHA) and HUD to make its decision calculating loan limits, but has said it will consider alternative measurements and methods in the future.
The FHFA’s monthly purchase-only house price index declined 5.9% over the 12 months ending August 2008, while the all-transactions index fell 1.7% from the second quarter of 2007 to the second quarter of 2008. Other home price indexes, such as the S&P/Case-Shiller 20-City Composite Home Price Index has decreased 16.6% year-over-year as of August, the most recent data published.
Builders may feel little impact from the government’s decision. Because price declines have been so large in most areas of the country, much of what the home builders are selling will still qualify under the conforming loan limits. “What matters is the qualification requirements, especially the down payment requirement and FICO scores, and I hear those are becoming more conservative almost daily,” John Burns, president of John Burns Real Estate Consulting in Irvine, Calif., told BUILDER in an e-mail.
While the new loan limits will affect loans purchased by Fannie or Freddie in 2009, loans made in late 2007 and in 2008 will carry higher conforming loan limits, as laid out in the Economic Stimulus Act. Loans from the second half of 2007 and all of 2008 have a limit as high as $729,750, whereas the highest possible single-family loan limit for 2009 is $625,500.
The 2009 conforming loan limits are higher for Alaska, Hawaii, Guam, and the U.S. Virgin Islands than they are in the continental United States. Loan limits on single-family homes vary from $625,500 to $721,050 for those areas.
Builders and others who feel the limit should have been increased, or increased more than it was in certain areas, will have 30 days to appeal FHFA’s ruling. All appeals should be based on data suggesting higher price medians for specified areas, FHFA said in a statement. Details of the appeals process will be released later Friday.
Burns says builders ought to be thankful for government intervention, and not be upset about FHFA not increasing the conforming loan limit, or re-establishing the aggressive lending practices which helped fuel the housing bust. “If left up solely to banks who had to keep the loans on their books, as it was in the early 1980s, mortgages would be very, very expensive today,” Burns said.
Ethan Butterfield is senior editor, business, at BUILDER magazine.