It was reported this past week that beginning on October 1, 2011, Fannie Mae and Freddie Mac, the two home mortgage giants, have announced that they will reduce the size of the maximum mortgage they will buy from banks and other mortgage originators from 125% of the local median home price with a maximum of $729,750 back to the prior limit of 115% of the local median home price with a maximum of $625,000. The U.S. Treasury Department had recommended in February that Congress let the conforming loan limits reset as Fannie Mae had announced plans to do in November, 2010.
If this change takes place, the effect on buyers of higher-priced homes or homes in higher-prices communities will be felt in Florida and nationwide. According the the Federal Housing Finance Administration, 204 counties, or 6.5% of the 3,143 counties in the U.S., will see a decrease in their high-cost conforming loan limit. Those counties in Florida and other states contain 20.7 million owner occupied homes or 27% of the 75.3 million homes in the country.
In 2008, the limit on the size mortgage Fannie Mae and Freddie Mac would guarantee or buy from banks and other mortgage originators had been $417,000 for single-family homes, except in what were deemed to be high cost markets, where the limit was 115% of the local median home price with a maximum of $625,000.
At that time, Congress increased the size of mortgages Fannie Mae, Freddie Mac and FHA could guarantee or buy from 115% of the local median home price limit up to $625,000 up to 125% of the local median home price with a new maximum of $729,750. This increase meant that families seeking to buy higher-priced homes could now qualify for the more lenient down payments and interest rates associated with so-called “conforming” mortgages.
In anticipation of this upcoming reduction, a number of the major banks, including Bank of America, JP Morgan Chase and Wells Fargo, have already stopped accepting applications for mortgages of more than the new limits.
Most banks and other mortgage originators do not want to keep home mortgages “on their own books.” They want to sell them to Fannie and Freddie. Under the new limits, home buyers of higher-priced homes who would have benefitted from these “conforming” mortgages will find that they will now be required to have cash on hand to cover down payments of 20% or more. Interest rates, now at or below 4.5% are expected to jump to 5.0% or more. While some home buyers will be able to meet the stiffer requirements, many will be forced to buy a smaller home or simply put off their plan to buy a home altogether. Overall, the drop in the maximum size for conforming mortgages will be one more unwelcome force tending to depress home prices, something the U.S. housing market certainly does not need at this point.
In a joint letter released last week, the Mortgage Bankers Association and more than a dozen other industry groups warned that failing to extend the limits, as currently planned, will further delay a recovery in the housing market. The letter said, in part, “With tight underwriting already constraining mortgage availability, lowering the loan limits will only further restrict liquidity… Extending the existing limits at levels appropriate for all parts of the country will provide homeowners and home buyers with safe, affordable financing and help stabilize local housing markets.”
A bipartisan group of 37 Congressional lawmakers sent a letter to the House Appropriations Committee recommending an extension of the current conforming limits for two more years until october, 2013. The group, led by Rep. Gary Ackerman (D., N.Y.) and John Campbell (R., Calif.), urged the committee to attach such a provision to a temporary funding measure that would keep the government running when fiscal 2012 begins on Oct 1st.
If you are considering buying a home on which you would need a mortgage in excess of the basic $417,000 limit, you may want to contact your Congressman and Senators to support extending the current maximum limits for Fannie Mae and Freddie Mac conforming mortgages.
If you would like further information on homes and home mortgages in the Sarasota and Bradenton, Florida home market, I invite you to E-Mail Me or call me at 941-266-1799 at your convenience. You may also want to visit my Sarasota Florida real estate website.
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